The Federal Housing Finance Agency (FHFA) has announced the conforming loans limits that will apply to the two government sponsored enterprises (GSEs) Fannie Mae and Freddie Mac in 2012.  The baseline limit will remain at $417000 for one unit properties in most of the country with certain higher limits for designated "high value" counties based on median home prices.  The highest limit in those counties will be $625,500, the limit that has been in effect since October 1 when higher limits temporary established under the Housing and Economic Recovery Act (HERA) of 2008 expired.  The only county where limits will change on January 1 is Fairfield County, Connecticut.

Under the temporary HERA provisions the upper loan limit in high value areas prior to October 1 was $729,500.  On November 18 President Obama signed a law returning FHA loans to that that maximum and reinstating the even higher limits that had been in effect for VA loans.  The GSEs were specifically excluded from that legislation.  

In Fairfield County the maximum limit for a single-family home will increase by $26,450 to $601,450 based on an increase in the local median home value.  While other counties also saw median price increases, this county was the only one that met other HERA terms to produce a higher loan limit.

HERA requires that the baseline limit be adjusted each year to reflect changes in the national average home price, but prohibits declines in the limit. If average home prices decline, then the baseline loan limit remains the same. In setting HERA limits for 2009, 2010, and 2011, FHFA found that the national average home price declined over preceding years. As a result, the national loan limit was left unchanged. This year, the monthly and quarterly house price index (HPI) series produced by FHFA show further national price declines and thus the baseline loan limit is again unchanged.

Going forward, FHFA is looking at alternatives to this method and plans, in coming months, to publish a notice in the Federal Register that will set forth a specific methodology for measuring price changes for loan limit adjustments.  FHFA noted that, had this proposed metric been in effect this year, it would not have produced results for 2012 any different than those announced today.