Using federal data on average home prices, the Office of Federal Housing Enterprise Oversight (OFHEO) has established new loan limits for Fannie Mae and Freddie Mac. Fannie Mae will increase its single-family mortgage loan limit to $359,650, and Freddie Mac will raise its limit from $333,700 to $359,650, effective Jan. 1.
As a result of the new loan limit, Fannie Mae estimates that in 2005, as many as an additional 271,524 homeowners would be eligible for a conforming loan, while Freddie Mac foresees an additional 340,000 families obtaining lower-cost mortgage financing. Freddie Mac estimates that the total mortgage interest savings for a borrower with a typical 30-year, fixed-rate mortgage at the new conforming loan limit is as much as $24,800 over the life of the loan.
OFHEO, the safety-and-soundness regulator of Fannie Mae and Freddie Mac, established the new ceilings on mortgages that can be purchased or securitized by the government-sponsored enterprises by taking into account the fact that the two secondary-market giants failed to make a $2,300 downward adjustment in average housing prices when calculating the 2004 ceiling. Had OFHEO not incorporated that adjustment in the 2005 maximum, the limit would have been $362,000.
The loan limits adjustments are based on the October-to-October changes in the mean home price, as published by the Federal Housing Finance Board (FHFB). The FHFB figures come from its monthly survey of lenders, which includes new and existing homes. The average for both new and exiting homes in October was $264,540, up 8.53 percent from $243,756. But because of last year's procedural error, the increase in the limit for 2005 will only be 7.8 percent.
Fannie Mae limits for multi-unit loans for 2005 will be as follows: two-family loans, $460,400, three-family loans, $556,500 and four-family loans, $691,600. The 2005 loan limit for second mortgages will be $179,825. The new Freddie Mac loan limits for mortgages on one-to-four family properties will be: $359,650 for mortgages on one-family properties (up from $333,700), $460,400 for mortgages on two-family properties (up from $427,150), $556,500 for mortgages on three-family properties (up from $516,300) and $691,600 for mortgages on four-family properties (up from $641,650).
The maximum amounts for one-to-four-family mortgages and second mortgages in Alaska, Hawaii, Guam and the U.S. Virgin Islands are 50 percent higher than the limits for the rest of the country.
Because of the higher conforming loan limits, the ceilings on federally backed mortgages will also increase next year, but it is unclear whether they will be based on the OFHEO-adjusted figure.