Fannie Mae and Freddie Mac back nearly $ 1 million home loans

WASHINGTON — The federal government is set to support nearly $ 1 million mortgage loans for the first time.

The maximum size of home mortgages eligible for Fannie Mae and Freddie Mac support is expected to increase sharply in 2022, reflecting the rapid appreciation in nationwide house prices over the past year.

The increase may make it easier and cheaper for some borrowers to buy a home, especially in more expensive parts of the country, but the higher limits are also likely to elevate the debate over how much to pay. mortgage too large to be supported by the government. .

“Home prices are expensive,” said Steve Walsh, president of Scout Mortgage in Scottsdale, Ariz., Adding that some of his clients could not qualify for loans for small homes within current limits.

“I don’t believe these people are looking for a castle, just a three bedroom house with a backyard,” Mr. Walsh said.

By law, loan limits are updated annually using a formula that takes into account average increases in house prices nationwide.

Currently, government-controlled mortgage companies can support single-family mortgages with balances of up to $ 548,250 in most parts of the country and up to $ 822,375 in expensive housing markets, including parts. from California and New York.

These limits are expected to rise to a baseline of around $ 650,000 in most jurisdictions and to just under $ 1 million in high cost markets.

In total, about 100 counties out of more than 3,000 counties across the United States are designated as high-cost markets, according to the Federal Housing Finance Agency.

The precise loan limits are expected to be announced on November 30 by the agency, which oversees the two mortgage giants, and the new limits will take effect in January. Mortgages within limits are called conforming loans; mortgages that exceed them are called jumbo mortgages, which tend to be more expensive for borrowers to obtain and typically have larger down payments for comparable borrowers.

Mortgage bankers and real estate agents say the new limits should keep pace with the double-digit rise in house prices. Low mortgage interest rates and buyers looking for more space during the pandemic have helped fuel soaring house prices in recent months, along with a significant shortage of new homes.

Nationally, the median selling price of existing single-family homes rose 16% in the third quarter to $ 363,700 from the previous year, a record high in data dating back to 1968, the National Association said. of Realtors on November 10.

But some housing experts say the expected hike in loan limits raises questions about the government’s proper role in housing and whether taxpayers should actually support sky-high house prices, as Fannie and Freddie’s market share is already increasing.

Fannie and Freddie, who guarantee about half of the $ 11 trillion mortgage market, don’t make loans. Instead, they buy them from lenders and package them into securities that are sold to investors.

Business market share during the pandemic has grown to nearly 60% of all new mortgages, from around 42% in 2019, according to the Urban Institute, a Washington think tank that conducts research on economic policy. and social.

“For some policymakers, the $ 1 million threshold will catalyze concerns and conversations,” said Isaac Boltansky, policy analyst at brokerage firm BTIG. “The annual loan limit formula is an elegant way to adjust policy without disrupting markets, but it bypasses the larger and more consistent debates about the optimal and appropriate role of government in the housing market.”

The government took control of companies in 2008 at the height of the financial crisis to prevent their bankruptcy. Under their 2008 trusteeship, they currently have access to more than $ 250 billion in support from the Treasury Department.

Some housing policy experts wary of Fannie and Freddie’s outsized role say the expected sharp increase in loan limits should prompt policymakers to debate the level of government support needed for a mortgage. Borrowers who can afford million-dollar mortgages should be able to finance a home without government-backed funding, they say.

They favor policies that would eventually wean the mortgage market from government support and allow the government unsecured mortgage market to play a larger role, especially for high dollar value loans.

“We continue to follow a path in which we see the Treasury, through the support of Fannie and Freddie in trusteeship, supporting larger and larger loans, taking more and more market,” said Ed DeMarco, a former top FHFA official who is now chairman of the Housing Policy Council, a housing industry business group. “At some point you would expect Treasury and Congress to want to ask, is this really where we want to go?”

Mr DeMarco’s group prefers the FHFA to use its powers as a curator of Fannie and Freddie to freeze or remove loan limits, essentially reversing the annual formula that calls for an increase in loan limits.

Realtors say restricting loan limits would punish borrowers in expensive markets where modest start-up homes can fetch seven-figure prices.

In a 2021 housing survey, the California Association of Realtors found that about a quarter of homes selling between $ 1.25 and $ 2 million were bought by first-time buyers. That figure was around 40% in the San Francisco area, the group said.

“Reducing the role of government in the mortgage market will only hurt first-time homebuyers and low- and moderate-income home buyers,” said Dave Walsh, president of the California Association of Realtors.

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