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The Trump administration is reportedly considering reducing Fannie Mae and Freddie Mac’s conforming loan limits — a move that could relieve pressure on home prices but leave more homebuyers seeking jumbo mortgages at higher rates from private lenders.
“We don’t think people in the mortgage markets understand the radical nature of the changes in store for the GSEs,” Whalen Global Advisors LLC Chairman Christopher Whalen posted on the social media platform X of the firm’s take on changes that could be in store at the government-sponsored enterprises (GSEs).
“This is not about release from conservatorship, but rather rolling back the GSEs to 1970s levels of activity,” Whalen wrote last week. “How does a conforming loan limit of say $500,000 sound?”
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Fannie Mae and its federal regulator, the Federal Housing Finance Agency (FHFA), did not respond to Inman’s requests for comment. Freddie Mac declined to comment.
But housing and lending industry observers are taking Whalen’s warnings seriously.
An industry veteran whose past experience includes senior research positions at Kroll Bond Rating Agency and Carrington Holding Co., Whalen has connections at Fannie Mae and Freddie Mac — including friends he says were recently laid off.
“Just got another confirmation that we will see a cut in the conforming limit, [and] big activity reductions at Fannie Mae and Freddie Mac,” Whalen posted in a follow-up on X Sunday. “‘It will help affordability,’ was [the] comment I received.”
Bill Pulte
Bill Pulte, the Trump administration’s pick to lead FHFA, has heightened expectations that dramatic changes are in store after purging 14 of Fannie and Freddie’s board members, appointing himself chairman of both companies, and firing Freddie Mac’s CEO and other executives.
Pulte, “is clearly examining all the factors that influence the business for Fannie Mae and Freddie Mac; it’s appropriate he look at this [the conforming loan limit] as well,” National Housing Conference (NHC) CEO David Dworkin told Inman. “It’s also important to look at it carefully, and consult broadly, to make sure any decision doesn’t have unintended consequences. Reasonable people can disagree on intended consequences, but unintended consequences are in no one’s interest.”
Dworkin — also a well-connected industry veteran — has been posting weekly insights on the many changes in play that could impact mortgage finance, including potential privatization of Fannie and Freddie and staffing cuts at the Department of Housing and Urban Development (HUD), FHA and Ginnie Mae.
“There’s a lot of change on the table right now,” Dworkin said. “It’s important to be deliberate.”
Congress has tied Fannie and Freddie’s conforming loan limits to the average U.S. home price, as measured by the FHFA’s House Price Index, which showed U.S. house prices rose 4.3 percent during the year ending Sept. 30, 2024. That pushed the 2025 baseline conforming loan limit to $806,500 in most parts of the country and the ceiling in high-cost markets to $1,209,750.
When mortgage rates hit historic lows during the pandemic, soaring home prices pushed the conforming loan limit up by $98,950 in 2022 — an 18 percent increase from the year before.
That record increase prompted criticism from groups like the Housing Policy Council, a trade association representing mortgage lenders and servicers, which argued that the higher loan limits for Fannie and Freddie make it harder for private lenders to compete — and put pressure on home prices.
Baseline conforming loan limit, 2000-2025
Source: Federal Housing Finance Agency
When home prices crash, as they did during the 2007-09 Great Recession, FHFA has been content to leave the conforming loan limit alone until prices catch up.
“It’s unclear how much legal authority exists [for FHFA] to lower the loan limits,” Dworkin said of the formula mandated by the Housing and Economic Recovery Act of 2008 (HERA). “However, there’s no question that when HERA was passed, no one envisioned Fannie and Freddie buying $1.2 million loans in the Bronx, or $800,000 loans in Des Moines, Iowa.”
2025 conforming loan limits for multi-unit properties
Source: Federal Housing Finance Agency
The baseline conforming limits for multi-unit properties are $1,032,650 for two-unit homes, $1,248,150 for three-unit homes and $1,551,250 for four-unit properties. The ceiling in high-cost markets is $1,548,975 for two-unit properties, $1,872,225 for three-unit homes and $2,326,875 for four-unit properties.
In a podcast interview Sunday, Whalen — who declined Inman’s request for comment — said that he’s hearing the Trump administration also intends to restrict Fannie and Freddie’s new business — and get the mortgage giants out of multifamily lending altogether.
Christopher Whalen
“I’m all in favor of reform, because I think, unfortunately, the subsidies we provide caused home prices to go up a lot,” Whalen said on the podcast Monetary Matters with Jack Farley. “So it’s now a political issue. I think what a lot of conservatives would like to see is for the government to get out of everything except that first-time homebuyer — whether we’re talking about the FHA, which really caters to lower income borrowers, or the middle class, which deals with Fannie Mae and Freddie Mac.”
If the Trump administration wanted to rein in Fannie Mae and Freddie Mac to give private lenders more market share, it could also require them to raise the guarantee fees charged to lenders, BTIG analyst Eric Hagen said Tuesday in a note to clients.
Lowering Fannie and Freddie’s conforming loan limits would be “among the more blunt instruments” that the FHFA could employ to reduce the mortgage giants’ footprints, Hagen said.
Fannie and Freddie don’t make loans themselves, but guarantee payments to investors who fund the majority of U.S. home loans. The guarantee fees that Fannie and Freddie charge lenders — costs that are passed on to borrowers — are intended to cover their administrative costs, expected credit losses and cost of capital.
The “g-fees” Fannie and Freddie charge lenders get passed along to borrowers, so raising them can have impacts on homebuyers and rankle industry groups and politicians.
When the Biden administration raised guarantee fees on some mortgages with smaller down payments in 2023, it triggered a backlash from housing industry groups who questioned whether the fee hikes were intended to subsidize fee waivers for first-time homebuyers of limited means.
“I’m not a big fan of raising g-fees to manage market share — they should be based on risk,” Dworkin said.
“I also think there’s no question that directly tying the loan limit to increases in home values can have a pro-cyclical impact” on home prices, he said — accelerating home price appreciation when demand is strong. “I do think there’s a long-term argument to be made for freezing [the conforming loan limits] and allowing housing prices to catch up in a way that would be more gradual and less disruptive.”
Mortgage originations by funding source, 2001-2024
Funding sources for first-lien mortgages. Source: Inside Mortgage Finance and the Urban Institute.
Loans that exceed Fannie Mae and Freddie Mac’s limits are considered “jumbo mortgages” and often have higher rates and tighter underwriting standards. That’s because instead of selling the loans to Fannie and Freddie to be bundled up into mortgage-backed securities (MBS), some lenders keep jumbo loans in their own portfolios — exposing them to risk and limiting their ability to make more loans.
Alternatively, jumbo lenders can package loans into private-label securities (PLS) that aren’t guaranteed by Fannie and Freddie. The PLS market, which at times surpassed GSE securitizations by Fannie and Freddie during the 2004-07 subprime lending boom, all but disappeared for a decade after the ensuing housing crash.
Although PLS mortgage securitizations nearly doubled from 2023 to 2024, to $72.5 billion, they represented less than 5 percent of the $1.66 trillion in first-lien mortgages originated last year, according to data tracked by Inside Mortgage Finance and the Urban Institute.
At $665 billion, GSE securitizations backed by Fannie and Freddie guarantees accounted for 40 percent of first-lien lending. Portfolio lenders captured 30 percent of the market, while FHA and VA securitizations by Ginnie Mae accounted for another 26 percent.
David Dworkin
Dworkin said that efforts to shift more business back to the PLS market could exacerbate the impacts of a future downturn, as borrowers with loans backed by Fannie and Freddie are more likely to get help avoiding foreclosure through efforts like mortgage modifications.
“Foreclosure should be a last resort, not the only choice,” Dworkin said. “In the PLS market, particularly in the Great Recession, too often foreclosure was the only choice.”
Whalen said the push by conservatives to reduce the government’s footprint in mortgage lending could leave FHA with the riskiest and least profitable segment of the market.
“They want to get them out of second homes, they want to get them out of refinance mortgages, and essentially that business would go back to the banks,” Whalen said on the Monetary Matters podcast.
“Because the banks love big loans, love loans from affluent Americans, right? Because they have a very low probability of default,” Whalen said. “When you’re talking about mortgages that are below the average size, like, say, around $400,000 — banks don’t want to touch that. That’s a government market today.”
Last month, the Mortgage Bankers Association warned that while delinquency rates on conventional mortgages remain near historical lows, delinquencies on FHA and VA loans are increasing at a faster pace.
As of Dec. 31, the delinquency rate for conventional loans was 2.62 percent, compared to 4.70 percent for VA loans and 11.03 percent for FHA loans, the MBA said.
If Fannie and Freddie’s loan limits are reduced, Dworkin said that also “potentially puts the GSEs more directly in a position of competing with FHA — they’re going to take the cream out of the FHA market and leave the government with the riskier mortgages.”
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