Lew Sichelman is a seasoned writer with 50 years of covering the housing and mortgage markets under his belt. His biweekly Inman column publishes on Tuesdays.
Homebuyers will be able to afford a little more house at a slightly cheaper rate next year thanks to a 6.9 percent boost in the so-called “conforming loan limit.”
The increase in the ceiling — the maximum loan amount secondary mortgage market giants Fannie Mae and Freddie Mac can purchase from local lenders — to $484,350 was announced on Tuesday by the Federal Housing Finance Agency, the regulator that oversees the two companies.
The change takes effect on Jan. 1, 2019. The previous limit has been $453,100.
In certain high-cost areas like California, New York City and Washington, D.C., the limit will be 150 percent of the baseline ceiling, or $726,525.
And based on special statutory provisions, the baseline ceiling in Alaska, Hawaii, Guam and the U.S. Virgin Islands will be $726,525 for single-family houses and somewhat higher for two-, three- and four-unit properties.
As a result of generally rising home values, the FHFA said, the maximum conforming loan limits will be higher in 2019 in all but 47 of the country’s 3,300-odd counties or county equivalents.
The limit is key because mortgages that are purchased from primary lenders by Fannie Mae and Freddie Mac and rolled into securities for sale to investors worldwide are usually as much as quarter-percent cheaper than that charged by lenders who hold their loans for their own portfolios.
Investors are willing to take slightly less profits because the two government-sponsored enterprises back the mortgages by the full faith and credit of the U.S. government.
Fannie and Freddie, sometimes known as “the agencies” in the mortgage sector, have been in conservatorship for the past decade. They were taken over by Uncle Sam in 2008 at the height of the housing crisis.
And although there have been several bills thrown into the hopper over the years to rework the secondary market system, including one or two that would turn the two companies into totally private companies, Congress has yet to act, waiting, observers say, for the executive branch to throw its weight into legislation of some kind.
One reason neither the Obama or Trump White Houses has seen fit to act to date is that the two government-sponsored enterprises are still making gobs of money, money that, under the rules of their conservatorships, is swept into the general Treasury.
This will be the third consecutive year in which the limit has increased. From 2006 to 2016, the ceiling remained stagnant at $417,000 as home prices tumbled and then gradually made their way back to pre-recession levels.
But in 2016, the limit rose to $424,100, and last year, it rose again to $453,100.
The limit is determined by the Housing and Economic Recovery Act of 2008, which mandates that the base ceiling cannot rise until house prices rise to pre-decline levels. In the third quarter, the FHFA’s House Price Index, showed the prices rose an average of 6.9 percent quarter-over-quarter from last year.
Click here for a map showing the maximum conforming loan limits across the country.
Click here for the county-by-county list of limits for 2019.
Lew Sichelman’s weekly column, “The Housing Scene,” is syndicated to newspapers throughout the country.