WSJ: Fannie, Freddie loan limits to be reduced Jan. 1

The federal regulator overseeing Fannie Mae and Freddie Mac plans to reduce their loan limits by Jan. 1, the Wall Street Journal reports. In most parts of the country, the “conforming loan limit” is $417,000. Fannie and Freddie can back loans of up to $625,000 in higher-priced markets, and up to $721,050 in Hawaii.

The Federal Housing Finance Agency, which maintains that it does not need congressional approval to reduce loan limits, told the Journal in a statement that a “gradual reduction in loan limits is an appropriate and effective approach to reducing taxpayers’ mortgage-risk exposure … and expanding the role of private capital in mortgage finance.”

On his blog Calculated Risk, Bill McBride charts the conforming loan limit against three home prices going back to 1980. While the limit was adjusted regularly as home prices increased, it’s held at $417,000 since 2006. If the limit had been allowed to fall with home prices, McBride thinks it would be around $385,000.

“I suspect the high cost limit (of up to $625,000 in most high-cost markets) will be continued and will remain close to the current level,” McBride writes.

Congress had authorized Fannie and Freddie to venture into what had previously been considered “jumbo loan” territory in 2008, after the secondary market for mortgages not backed by the government collapsed.

The Federal Housing Administration continues to provide insurance to lenders on mortgages with limits that vary from $271,050 to $729,750, depending on home prices at the county level. Source: online.wsj.com.