GSEs Announce Loan Limits to Remain the Same for 2014
The Federal Housing Finance Agency (FHFA) has announced that the 2014 maximum conforming loan limits for mortgages acquired by the government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac, will remain at $417,000 for one-unit properties in most areas of the country. The Housing and Economic Recovery Act of 2008 (HERA) establishes the maximum conforming loan limit that Fannie Mae and Freddie Mac are permitted to set for mortgage acquisitions. HERA also requires annual adjustments to these limits to reflect changes in the national average home price. Further information on potential future changes in the maximum size of loans that Fannie Mae and Freddie Mac guarantee will be forthcoming. Click here to view the maximum conforming loan limits for 2014. “Realtors welcome today’s announcement from the Federal Housing Finance Agency that the current limits on conforming loans will remain in effect until further notice," said National Association of Realtors (NAR) President Steve Brown. "As the leading voice for homeownership, NAR opposes lowering the ceiling on loans eligible for backing by the government-sponsored enterprises. Lower loan limits would increase costs for consumers and reduce their access to conventional mortgages." In determining 2014 loan limits under the terms of the Housing and Economic Recovery Act (HERA), 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 historical index values for FHFA’s monthly and quarterly House Price Index (HPI). HERA requires that the baseline loan limit be adjusted each year to reflect changes in the national average home price. After a period of declining home prices, however, HERA requires that prior price declines be fully offset before a loan limit increase can occur. During the recent housing crisis, the average U.S. home price declined substantially. While estimates vary, the FHFA monthly and quarterly HPI declined by close to 20 percent through 2011. Although FHFA’s monthly and quarterly HPI have evidenced price increases in periods since, the increases have not been sufficient to offset the losses. As such, pursuant to the terms of HERA, the baseline maximum loan limit has been left unchanged. In making this determination, as in the past, the FHFA HPI has been used. The same result would apply, however, if any of several other commonly-cited house price metrics were used. FHFA continues to evaluate a number of methodologies for tracking changes in the national average house price. HERA provisions require that FHFA set loan limits as a function of local-area median home values. Where 115 percent of the local median home value exceeds the baseline loan limit ($417,000 in most of the U.S.), 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. In the District of Columbia and all U.S. states except Alaska and Hawaii, the highest possible local area loan limit for a one-unit property is $625,500 (150 percent of $417,000). Consistent with FHFA’s prior practice in determining the 2014 HERA limits, FHFA used median home values estimated by the Federal Housing Administration (FHA) of the U.S. Department of Housing & Urban Development (HUD). FHA has calculated those median values for the purpose of determining its own lending limits. After the FHA loan limits are announced, FHA allows a 30-day appeals period for appellants to submit data suggesting a potentially higher median home value for a given area. 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 the conforming loan limits and announce the resulting changes. “There is already enough turbulence in the regulatory environment for mortgage lending," said Brown. "In January 2014, many changes stemming from the Dodd-Frank Act will go into effect, including the ability-to-repay requirement. In addition, risk retention regulations remain in flux, including the definition of a Qualified Residential Mortgage. Lowering loan limits at this time would create even more confusion and uncertainty, and we would run the risk of reversing the progress that’s been made in the economic recovery.” In determining the 2014 HERA loan limits in high-cost areas, FHFA continued its policy of not permitting declines relative to prior HERA limits. While HERA did not explicitly prohibit declines in high-cost area loan limits, that approach is consistent with the statutory procedure for responding to changes in prices on a national basis. Subject to this policy, the 2014 HERA limits reflect the higher of the limits directly calculated for 2014 and HERA loan limits determined for years 2009 through 2013. The 2014 loan limits are higher than 2013 HERA limits in several counties. Those increases were, in some cases, a function of rising median home values. The latest year showed strong home price gains throughout the country and, in some locations, those gains were sufficiently large to elevate loan limits above levels in prior years. In some cases, the increases in loan limits resulted from new metropolitan area boundaries established by the Office of Management and Budget (OMB).