Lenders Jump Gun on Higher Conforming Limit

Quicken Loans announced Friday that it would immediately raise its conforming loan limit to $400,000 from $359,650 for homes in the lower 48 states in an effort to enable borrowers “to get more home for their money without paying a premium for ‘jumbo’ rate mortgages.”

A higher ceiling on the conforming loan amount means prospective borrowers can afford to buy more home per dollars spent on payments and gives way for existing jumbo borrowers with balances up to $400,000 to refinance to a lower rate. Those currently in a 30-year fixed-rate jumbo mortgage could potentially save nearly $47,000 over the life of the loan, Quicken said.

Even borrowers with mortgage balances beyond $400,000 can benefit from the higher conforming limit when second mortgages are used.

The Livonia, Mich.-based lender decided to offer their clients a head start in savings because it expects the government sponsored enterprises will raise their conforming loan limits in January. Conforming mortgages are guaranteed by Fannie and Freddie and thus carry interest rates that are as much as a half percent lower than nonconforming jumbo loans, according to the announcement.

And Quicken isn’t the only lender to jump the gun.

“A lot of lenders are sending out letters stating that they are going to start accepting loans at higher loan limits well ahead of the Fannie Mae announcement,” Bob Moulton, president of Americana Mortgage in Manhasset, New York, reportedly told CNN, noting he hasn’t seen such moves in his 25 years of business.

Other lenders raising the limit ahead of schedule include Bank of America and Countrywide Financial, according to CNN.

Each January, government sponsored Fannie and Freddie concurrently adjust the maximum loan amount they will purchase based on the annual average home price appreciation from October to October. The average price appreciation is calculated for homes in the 48 states by their regulator, the Office of Federal Housing Enterprise Oversight, according to Quicken’s announcement.

Quicken said the average appreciation this year is expected to be approximately 11 percent. At that rate, the current residential conforming loan limit of $359,650 would rise to $399,212.

The current limit for conventional mortgages announced by the GSEs last November reflected an increase of nearly 8% from 2004.

By law, the Federal Housing Administration annually adjusts the loan limit on FHA-insured mortgages according to Fannie’s and Freddie’s limit. An 11% increase would raise the ceiling on government-insured single-family mortgages to $350,442 from the current $312,895.