CreditLoan Qualifications November 29, 2013

FHFA Housing Limits to Remain the Same

Federal Housing Finance Agency’s (FHFA) announced its intentions to keep the 2014 maximum conforming loan limits for mortgages acquired by Fannie Mae and Freddie Mac at $417,000 on one-unit properties in most areas and a cap of $625,500 in high-cost areas such as the San Francisco Bay Area.

Earlier this year, the FHFA announced its intention of lowering the loan limits. Since then, C.A.R. and the NATIONAL ASSOCIATION OF REALTORS® (NAR) aggressively fought to prevent a reduction in the loan limits. C.A.R. and NAR both have long advocated for making higher conforming loan limits permanent. As a result of C.A.R.’s and NAR’s efforts, Congress made permanent the maximum conforming loan limits at $625,500.

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.

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).