Hello, LOs!
The federal government will soon be backing mortgages that are nearly $1 million.
It's a large number, but given the home-price increases we've seen in the last year, wholesale lenders saw it coming and have been adjusting accordingly. The Federal Housing Finance Agency will make the formal announcement on Nov. 30.
UWM said in September that the maximum conforming loan limit for regular, one-unit properties would be $625,000, representing a $75,000 increase from the 2021 baseline national conforming loan limit. For special statutory provisions including Alaska and Hawaii, the baseline loan limit would be $937,500 for regular, one-unit conventional loans, up from $822,375.
PennyMac followed suit in October.
The FHFA sets the loan limits each year based on the yearly percentage increase of its house price index in the third quarter. In October, the agency reported that house prices rose 18.5% from August 2020 to August 2021.
What would happen to the baseline loan limit if, say, many distressed houses were to come to market, creating a glut of supply and lowering prices? That's one scenario HUD suggested as a rationale for not lowering its mortgage insurance premiums.
Actually, the baseline loan limit can only move in one direction. During a downturn, when the average home price is not increasing, it stays flat. After a period of declines, statute requires that the baseline loan limit cannot increase until prior declines are "made up." That's why from 2007 to 2017, the baseline loan limit did not budge from $417,000. Any loan that is over the maximum loan limit is considered a jumbo loan.
Some housing policy experts have questioned the expected increases, which are set by statute. Should the federal government be financing mortgages that are nearly $1 million? A former FHFA director told the Wall Street Journal that Congress and the Treasury should consider that question.
Let me know your thoughts, by sending an email to gkromrei@housingwire.com
Georgia Kromrei
Senior Mortgage Reporter, HousingWire
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