The Federal Housing Finance Agency (FHFA) has announced that, under terms set forth in the Housing and Economic Recovery Act of 2008 (HERA), the maximum conforming loan limits for mortgages acquired by the government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac in 2012 will remain at existing levels except in Fairfield County, Conn., where it will increase. The maximum conforming loan limits for one-unit properties, which generally have applied to loans originated since Oct. 1, 2011, are $417,000 in most locations, but are as high as $625,500 in certain high-cost areas in the contiguous United States.
For loans originated prior to October 2011, the maximum loan limit was as high as $729,750 in the contiguous U.S. However, that higher “ceiling” was permitted under legislation that no longer applies to newly-originated loans. The 2012 loan limits are set under the permanent formula established under HERA.
Under the HERA formula, the 2012 maximum loan limit for one-unit properties in Fairfield County, Conn. will increase by $26,450 from $575,000 to $601,450. The increase results from a rise in the local median home value, which is a key part of the HERA formula for determining local loan limits. While other counties also saw increases in home prices, Fairfield County, Conn. was the only one for which the increase ultimately produced higher loan limits after other HERA terms (e.g., the statutory ceiling and floor on loan limits) were taken into account.
In determining 2012 loan limits under the terms of HERA, the FHFA did not change the baseline maximum conforming loan limit for the United States. The baseline limit, $417,000 for one-unit properties in the contiguous U.S., was left unchanged based on declines in FHFA’s monthly and quarterly house price indexes. 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 is to remain 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.
While the FHFA HPI has been used this year and in preceding years for assessing the national average price change, pursuant to terms set forth under HERA, FHFA has evaluated a number of alternatives. FHFA plans to publish a Federal Register notice in the coming months that will proffer a specific methodology for measuring price changes for loan limit adjustment in the future. The notice, which will detail the methodology and also describe an alternative approach, will invite public comment.
