Fannie Mae and Freddie Mac will increase loan limits in the coming weeks, making it easier for buyers of more expensive homes to get a mortgage.
The Wall Street Journal reports that the compliant loan limit is expected to rise to a benchmark of $ 650,000 and close to $ 1 million in high-cost markets. The current compliant loan limits for single family homes are $ 548,250 and $ 822,375, respectively.
The exact loan limits are expected to be announced on November 30 before they go into effect in early 2022.
Increasing loan limits should make it easier and cheaper for buyers to get a mortgage for amounts just above the current limit for what Fannie and Freddie will buy. Lenders are very willing to give loans that they know can be sold to government sponsored entities and tend to charge lower interest rates and not require high down payments for them.
Fannie and Freddie’s loan limits are determined by a formula, and the rising housing market has pushed the numbers up. NAR reports that the median price of a single-family home in the last quarter was $ 363,700. The loan limit increases are designed to keep entities in step with house prices, which have increased due to low mortgage interest rates, low supply and high demand.
The increase in loan limits will increase the footprint of Freddie Mac and Fannie Mae, heightening concerns about the federal government’s involvement in the housing market.
In 2019, Freddie and Fannie bought about 42% of new mortgages, according to the Urban Institute, but nearly 60% during the pandemic, the Journal reported.
The limits exist because buyers who can afford large homes generally do not need a government guaranteed mortgage. Fannie and Freddie guarantee nearly half of the $ 11 trillion mortgage market, helping first-time buyers and low-income borrowers, the Journal reports.
Government-sponsored entities have already loosened the screws during the pandemic. Fannie and Freddie took out loans from borrowers with lower credit scores, and Fannie began to consider rent payments when assessing the reliability of mortgage applicants.
Raising compliant loan limits should help borrowers, but other hurdles are approaching. The Federal Reserve has announced plans to cut its billion dollar bond purchase program, which could raise mortgage rates. In addition, the standards for jumbo loans that exceed the compliant loan limit are tightening.
[WSJ] – Holden Walter Warner