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Potential Impacts of Lower Conforming Loan Limits

by devteam November 22nd, 2013 | Share

In the November edition of CoreLogic’s e-magazinernMarketPulse, Kathryn Dobbyn looks atrnthe potential impact of lower conforming loan limits on the mortgagernmarket.  These limits, which set maximumrnamounts for conforming loans purchased or guaranteed by Freddie Mac and FanniernMae (the GSEs) and are generally followed for loans guaranteed by FHA and thernVA, were raised temporarily to a maximum of $729,000 in certain “high cost”rnareas by the American Recovery and Reinvestment Act (ARRA) in 2009.  When that act expired in late 2011 and afterrnmuch debate the limits rolled back to a maximum of $626,500 in high cost areasrnand $417,000 in the rest of the country, limits established by the Housing andrnEconomic Recovery Act of 2008 (HERA). rnThe limits are updated annually based on median home prices at therncounty level.</p

The updates to loan limits are usuallyrnpublished in November and this year the debate has heightened as the Edward J.rnDeMarco, acting director of the Federal Housing Finance Agency, regulator andrnconservator of the GSEs, has announced he intends to lower the limits and hadrnmet considerable blowback from housing industry groups.  Dobbyn looks at the prevalence of the jumbornconforming mortgages – those falling between $417,000 and $625,500 – to see whatrnmight be the impact of eliminating this category in areas of the country wherernit currently exists.    </p

First, she found that only 110,000 ofrnthese mortgages have been originated nationwide this year – 1.72 percent of allrnmortgage originations.  Loans used for homernpurchases totaled 47,000 and there were 63,000 refinances.   Looking only at the 15 states where 50 orrnmore such originations occurred she found only a few where they were widelyrnused.  By percent of originations thernDistrict of Columbia had the highest incidence at 18 percent although thatrntranslates to just over 2,000 loans.  Sixtyrnpercent of all jumbo conforming mortgages in the U.S., 68,000 loans, werernoriginated in California but they constituted less than 10 percent ofrnCalifornia’s total mortgage lending.</p

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Taken together, the District, Maryland,rnand Virginia have also benefited from the HERA limits with a total of aroundrn20,000 conforming jumbo originations, principally in the Washington andrnBaltimore metro areas.  The New York, NewrnJersey areas also together had 15,000 of the loans. </p

Dobbyn says it has been an interestingrntwo years since ARRA expired and the mortgage market is confronting manyrnunknowns, particularly in the regulatory area. rn”As the debate regarding changes to the conforming loan limits is boundrnto continue to some time,” she says, “it is helpful to note that at least forrnthe high-cost areas the impact of the current limits has thus far been minimal,rnyet highly targeted.”

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About the Author

devteam

Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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