Fannie Mae, Freddie Mac to pay back nearly $1 million home loan as price rises

The maximum size of home-mortgage loans eligible for endorsement by Fannie Mae and Freddie Mac is expected to jump sharply in 2022, a reflection of the rapid appreciation in home prices nationally over the past year.

The increase may make it easier and cheaper for some borrowers to buy a home, especially in more expensive areas of the country, but the higher limits could also fuel the debate about how large a mortgage is too large to be supported by the government.

“Housing prices are expensive,” said Steve Walsh, president of Scout Mortgage in Scottsdale, Ariz., adding that some of his clients are unable to qualify for loans for modest-sized homes under the current limit.

“I can’t believe these people are looking for a castle, just a three bedroom house with a backyard,” said Mr Walsh.

By law, loan limits are updated annually using a formula that factors in average home-price increases nationwide.

Currently, government-controlled mortgage companies can refund single-family mortgages that have balances of up to $548,250 in most parts of the country and up to $822,375 in expensive housing markets, including parts of California and New York.

Those limits are expected to rise to a baseline of about $650,000 in most jurisdictions and just under $1 million in high-cost markets.

According to the Federal Housing Finance Agency, about 100 of the more than 3,000 counties across the US are designated as high-cost markets.

The exact loan limits are to be announced on November 30 by the agency, which oversees the two mortgage giants, and the new limits will go into effect in January. Mortgages within the limits are called conforming loans; Mortgages that exceed them, called jumbo mortgages, are more expensive for borrowers to obtain and generally have larger payments for comparable borrowers.

Mortgage bankers and real estate agents say the new limits should keep pace with double-digit increases in home prices. Lower mortgage-interest rates and buyers looking for more space during the pandemic have helped fuel a significant shortage of new homes, along with rising housing prices in recent months.

Nationwide, the average single-family, existing-home sale price rose 16% to $363,700 in the third quarter from a year earlier, a record in data going back to 1968, the National Association of Realtors said Nov. 10.

But some housing experts say the expected jump in credit limits raises questions about the proper role of the government in housing and whether taxpayers should effectively roll back sky-high housing prices when Fannie and Freddie’s have market share. is already increasing.

Fannie and Freddie, who guarantee nearly half of the $11 trillion mortgage market, do not take loans. Instead they buy them from lenders and package them into securities that are sold to investors.

During the pandemic, companies’ market share increased from about 42% in 2019 to nearly 60% of all new mortgages, according to the Urban Institute, a Washington think tank that researches economic and social policy.

“For some policymakers, the one-million dollar limit will catalyze concern and negotiations,” said Isaac Boltansky, a policy analyst at brokerage firm BTIG. “The annual credit limit formula is an elegant means of adjusting policy without disrupting the markets, but it bypasses the larger and more consequential debates over the optimal and appropriate role of government in the housing market.”

The government assumed control in 2008 to prevent the failure of firms during the height of the financial crisis. Under the terms of his 2008 patronage, he currently has access to more than $250 billion in Treasury Department support.

Some housing-policy experts who are wary of the larger role of Fannie and Freddie say the sharp expected increase in loan limits should prompt policymakers to debate the level of government aid that is needed for a mortgage. Those borrowers who can afford a million-dollar mortgage should be able to finance a home without government-backed financing, he says.

They favor policies that eventually remove the mortgage market from government support and allow the market to play a larger role for non-government-guaranteed mortgages, particularly for high-dollar loans.

Ed DeMarco, a former top, said, “We are continuing to go down a mark in which we see the Treasury, through Fannie and Freddie’s backstops in conservatism, backing bigger and bigger debt markets. take a greater part of it.” FHFA official who is now chairman of the Housing Policy Council, a housing-industry trade group. “At some point, you’ll want to ask the Treasury and Congress, do we really want to go?”

Mr DeMarco’s group supports the FHFA by using their powers as custodians of Fannie and Freddie to freeze or drop the loan limit, essentially defying the annual formula that calls for an increase in the loan limit.

Real-estate agents say lowering the loan limit will penalize borrowers in costly markets where modest starter homes can fetch seven-figure values.

In a 2021 housing survey, the California Association of Realtors found that nearly one-quarter of homes sold for between $1.25 million and $2 million were purchased by first-time home buyers. In the San Francisco area, the figure was about 40%, the group said.

“Reducing the government’s role in the mortgage market will only hurt first-time and low- and middle-income home buyers,” said Dave Walsh, president of the California Association of Realtors.

This story has been published without modification to the text from a wire agency feed