The maximum dollar limits for conforming mortgage loans will remain unchanged for Freddie Mac and Fannie Mae in 2013. The GSEs' conservator, the Federal Housing Finance Agency (FHFA), announced on Thursday that the baseline limit that will apply to most of the country will be $417,000 for one unit properties. Differing limits, ranging as high as $625,000, will prevail in so-called "high cost" counties but in each instance will remain the same as in 2012.
Loan limits are established each year under the terms of the Housing and Economic Recovery Act of 2008 (HERA) and are determined by the median home values in local areas. While some counties saw increases in home prices over the past year, no loan limit increases were evident after other HERA terms such as the statutory ceiling and floor were taken into account.
Under HERA rules, the baseline loan limit must be adjusted each year to reflect changes in the national average home price. After a period of declining home prices such as the recent housing bust however, HERA requires that prior price declines be fully offset before loan limits can increase. During the recent decline the average U.S. home price fell (as measured by the FHFA Home Price Index) by more than 19 percent through mid-2011. Recent monthly and quarterly HPI numbers have increased slightly but have not yet fully offset the cumulative decline in prior years so the baseline will remain unchanged as they have for several years. Some high cost areas did have a maximum limit as high as $729,750 prior to the crash but that ceiling was rolled back in October 2011.
When FHFA announced the 2012 loan limits it said it planned to investigate other methods for determining the limits but now has decided to postpone any action. It explained that, since the baseline limit can only increase again after a significant and likely prolonged period of price increases and that new data sources are becoming available that may provide a better approach to tracking home prices there is no current urgency about researching other options.
In determining limits for higher cost areas FHFA used median home values from FHA. Where 115 percent of the local median home value exceeds the baseline loan limit ($417,000) the local loan limit is set at 115 percent of the median home value. The local limit cannot, however, be more than 50 percent above the baseline limit. Additional exceptions are made for loans in Alaska and Hawaii, Guam, and the U.S. Virgin Island where the baseline loan limit is statutorily set at 50 percent above the baseline limit for the contiguous U.S. states.
FHA uses the same median values to determine its own lending limits but permits a 30-day appeals period. If FHA changes its median price estimates as a result of any appeals, and if those changes would impact the FHFA conforming loan limits, FHFA may adjust them and announce the changes.
As noted above, 2013 loan limits do not differ from 2012 HERA limits in any counties. The fact that loan limits did not change is a function of a number of factors, including the prohibition on HERA loan limit declines in high-cost areas. Also important is the $417,000 floor on loan limits; in most areas of the country, 115 percent of the local median home price is far below $417,000. In many areas, even significant increases in median home values would not produce loan limits that exceed the $417,000 floor.
Loan limits for multi-unit properties are simply multiples of the one-unit limits therefore multi-unit limits have also been left unchanged throughout the country. For most areas outside of Alaska, Hawaii, Guam, and the U.S. Virginia Islands, loan limits are $533,850, $645,300, and $801,950 for two-, three- and four-unit homes respectively.
In instances where Fannie Mae and Freddie Mac may acquire seasoned mortgages those loans will be subject to limits that applied at the time of their origination.
