Conforming Loan Limits Remain at 2012 Levels

The maximum dollarrnlimits for conforming mortgage loans will remain unchanged for Freddie Mac andrnFannie Mae in 2013.  The GSEs’ conservator,rnthe Federal Housing Finance Agency (FHFA), announced on Thursday that thernbaseline limit that will apply to most of the country will be $417,000 for onernunit properties.  Differing limits,rnranging as high as $625,000, will prevail in so-called “high cost”rncounties but in each instance will remain the same as in 2012.</p

Loan limits are established each year under the terms of the Housing and Economic Recovery Act of 2008 (HERA) and are determined by the median homernvalues in local areas.  While somerncounties saw increases in home prices over the past year, no loan limit increases were evident after other HERArntermsrnsuchrnas the statutory ceiling andrnfloorrnwererntaken into account.</p

Under HERA rules, the baselinernloan limit must be adjusted each year to reflect changes in the nationalrnaverage home price.  After a period ofrndeclining home prices such as the recent housing bust however, HERA requiresrnthat prior price declines be fully offset before loan limits can increase.  During the recent decline the average U.S.rnhome price fell (as measured by the FHFA Home Price Index) by more than 19rnpercent through mid-2011.  Recent monthlyrnand quarterly HPI numbers have increased slightly but have not yet fully offsetrnthe cumulative decline in prior years so the baseline will remain unchanged asrnthey have for several years.  Some highrncost areas did have a maximum limit as high as $729,750 prior to the crash butrnthat ceiling was rolled back in October 2011.  rn</p

When FHFArnannounced the 2012 loan limits it said it planned to investigate other methods forrndetermining the limits but now has decided to postpone any action.  It explained that, since the baseline limitrncan only increase again after a significant and likely prolonged  period of price increasesrnand that new data sources are becoming available that mayrnprovide a better approach to tracking home prices there is no current urgencyrnabout researching other options.</p

In determining limits for higher costrnareas FHFA used median home values from FHA. rnWhere 115 percent of the local median home value exceeds the baseline loan limit ($417,000) the local loan limit is set at 115 percent of the median home value. The local limit cannot, however, be more than 50 percent above the baseline limit.   Additional exceptions are made for loans inrnAlaska and Hawaii, Guam, and the U.S. Virgin Island where the baseline loanrnlimit is statutorily set at 50 percent above the baseline limit for therncontiguous U.S. states.</p

FHA uses thernsame median values to determine its own lending limits but permits a 30-day appeals period. rnIf FHA changes its median price estimates as a result of any appeals, and if those changes would impact the FHFA conforming loan limits, FHFArnmayrnadjust them and announce the changes.</p

As noted above, 2013 loan limits do not differ from 2012 HERA limits in any counties. The fact that loan limits did not change is a function of a number of factors, including the prohibition on HERA loan limit declines in high-cost areas. Also important is the $417,000rnfloor on loan limits; in most areas of the country, 115 percent of the local median home price isrnfarrnbelow $417,000. In many areas, even significant increases in median home values wouldrnnot produce loan limits thatrnexceedrnthern$417,000 floor.</p

Loan limits for multi-unit properties are simply multiples of the one-unit limits therefore multi-unit limits have also been left unchanged throughout the country. For most areas outside of Alaska, Hawaii, Guam, and the U.S. Virginia Islands, loan limits are $533,850, $645,300,rnandrn$801,950 for two-, three- and four-unit homes respectively.</p

In instances where Fannie Mae and Freddie Mac may acquire seasoned mortgages those loans will be subject to limitsrnthat applied at the time of their origination.

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