Jumbo Loan Limits to Drop
Federal regulators are getting ready to reduce the size of home loans that mortgage giants Fannie Mae and Freddie Mac will will guarantee. Dropping the limit from $729,750 to $625,500. The impact on the higher end of the nation's housing market could be significant, as it will make homeowners looking to buy homes over that amount come up with down payments of 30 percent. On the other hand, the impending move may cause a handful of buyers to accelerate their home searches to get in before the change.
For those looking to sell luxury homes, the move will certainly have a negative impact by reducing the pool of available buyers. The average down payment lenders require for a loan to buy a $1 million home, according to analysts, will go from $270,000 to $370,000 after the change on October 1st. And the change could reduce activity in upscale neighborhoods, many of which are just recently starting to show signs of recovery.
Sotheby's who specializes in these higher-end luxury homes, reported sales gains over ten percent in the first quarter compared to the same period a year ago. The National Association of Realtors, meanwhile, reported that sales of homes priced over $1 million were 5.1 percent higher in March on a year-to-year basis. Some analysts, feel the change will not have a significant impact, because the market will find a way to adjust, expecting private lenders to step in and fill the void when the government backs out.
After all, it was only recently that loan limits on government-backed mortgages got so high. Prior to 2008, all home loans over $418,000 were considered jumbo loans and thus were not eligible for backing by Fannie or Freddie. That year, Congress raised the limit twice, first to $625,500, which it called a permanent limit, then to $729,750, the latter increase being called a temporary measure.
Since that time, Fannie and Freddie have gradually increased their share of the so-called jumbo conforming loans, or those over $417,000 but still under the limits of government-backing eligibility. Last year, Fannie and Freddie's share of such loans accounted for 6.73 percent of originations. The temporary limit has been extended twice, but it now appears as though regulators will let it expire at the end of September.
Afterwards, lenders making loans over that amount will be forced to hold onto the loans themselves or find private investors to sell them to. And while an active secondary market for these loans has not yet surfaced after the recession, insiders say there is some evidence that the private sector is ready to pick up when the government makes the change. In 2010's final three months, private lenders originated more loans over $417,000 than Fannie and Freddie combined.
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