If Congress does not extend support of higher loan limits on Jumbo loans quickly, borrowers might have to face “the more stringent standards of private lenders in order to qualify for financing on pricier homes” in the coming months as lenders prepare for the shift downward in the outdated loan limits Fannie Mae, Freddie Mac and the FHA are currently operating under[1]. The current limits on loans were based on “bubble-era” prices and calculated when home prices were much higher than they are today. New limits, calculated using today’s home prices, will almost certainly be lower.
Jay Farner, President of Quicken Loans, urges “anyone considering a mortgage larger than $400,000, especially an FHA loan, should understand that if Congress doesn’t extend higher loan limits, getting those loans might become more difficult and expensive. If you’re in the market for a larger loan, I’d recommend investigating your options now before the higher limits expire.”
The loan limits’ extension was originally part of President George W. Bush’s Housing and Economic Recovery Act. They were raised at that time to $729,750, which was 150 percent of the median home values at the time. If they are allowed to expire, Fannie and Freddie’s loan limits will likely fall to around $417,000 and FHA limits will be set locally by the county. Some economists believe that allowing the loans to expire will be a positive move in the direction of either abandoning or at least revamping Fannie and Freddie and that lowering the limits now will not matter as much to the housing market because home costs are so much lower than they were when the limits were set. “We need to think how we are going to exit from a Fannie-and-Freddie world,” explains Richard K. Green, Director of USC’s Lusk Center for Real Estate, “and this is a very small step toward that exit”[2]. Other economists believe that the expiration could send the housing market into another downturn, however, simply because of the negative media coverage that will surround such an event.
[1]http://www.tradingmarkets.com/news/stock-alert/fnm_fre_increased-limits-for-jumbo-loans-set-to-expire-at-year-s-end-1205111.html
[2]http://www.freerateupdate.com/jumbo-mortgages/jumbo-mortgage-jumbo-conforming-loan-limits-set-to-expire-at-end-of-year-6326
