Drop in Conforming Limits Means More Jumbo Mortgages

As the New Year rings in, some homeowners are likely to feel the pinch of higher mortgage rates and tightened credit — in particular, borrowers in certain areas of the U.S., with a mortgage between $625,500 and $729,750. That’s because temporary legislation that had boosted conforming mortgage limits to as high as $729,750 in certain designated high-cost housing areas expired at the stroke of midnight Thursday morning. Effective Jan. 1, Fannie Mae (FNM) and Freddie Mac (FRE) may no longer purchase or guarantee mortgage loans above the now-final $625,500 conforming limit put into place by the Emergency Economic Stimulus Act; the decrease in conforming limits for some borrowers is likely to be felt in places like California and New York, where the higher lending limits had given some borrowers access to conforming loans. Now, those borrowers are back into the pool of jumbo borrowers, a market that has essentially dried up during the recent housing and mortgage mess. The loans that are available in the market for jumbos come at a substantially higher rate in the primary market, relative to conforming mortgages. It’s unclear just how many higher-balance loans were purchased or guaranteed by the GSEs during 2008, something HousingWire will research for a future story. But it’s clear that the decline will push at least some borrowers into the still-largely-frozen jumbo mortgage market, increasing the rates they pay on a mortgage — assuming there is someone willing to fund the mortgage to begin with. Expect realtors and home builders to get pretty vocal about this issue in the months ahead. Congress has already seen opposition to the lower limit, as the National Association of Realtors has already lobbied for months, unsuccessfully, to make the $729,750 loan limit permanent, ahead of the Jan. 1 cutoff. Nonetheless, however, it’s worth nothing that the reduced high-cost conforming limit doesn’t affect most housing markets. In most parts of the U.S., the maximum loan limit will remain at $417,000 in 2009, the Federal Housing Agency said in November. Write to Kelly Curran at [email protected]. Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.