For the first time in more than a decade, limits on loans backed by the Federal National Mortgage Association and Federal Home Loan Mortgage Corp. have risen.
The baseline conforming limit on loans secured by one-unit properties was previously established by the Housing and Economic Recovery Act of 2008 at $417,000.
But the law prevented increases to the limit until prices returned to pre-crisis levels. As a result, there had been no increase made to the conforming limit since 2006.
But that changed on Wednesday.
The Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac, announced that the limit on one-unit properties — which was unchanged in 2016 — will rise to $424,100 in 2017.
On two-unit properties, the new limit is $543,000, while it is $656,350 on three-unit properties and $815,650 on four-unit properties.
FHFA’s Home Price Index, also released on Wednesday, indicated that home prices increased 6.1 percent from the third-quarter 2015 to the third-quarter 2016. The index, which was established at 100 as of the first-quarter 1991, topped out at 226 in the second-quarter 2007, dipped below 178 in the first-quarter 2011 and has soared to 238 as of the third-quarter 2016.
“Until this year, the average U.S. home price remained below the level achieved in the third quarter of 2007, and thus the baseline loan limit had not been increased,” FHFA stated.
In areas where 115 percent of
the local median home value exceeds the baseline loan limit, FHFA can raise conforming loan limits by 50 over the baseline. That makes the one-unit limit as much at $636,150 in some high-cost areas — including Alaska, Hawaii, Guam and the U.S. Virgin Islands. The high-cost limits on two-to-four unit properties are also increased by 50 percent.
Washington-based Fannie outlined the new limits in Lender Letter LL-2016-05.
On second mortgages, next year’s limit is $212,050. In outlying states and territories, the second mortgage limit is $318,075.
The new limits are effective for whole loans delivered, and loans delivered into mortgage-backed securities with pool issue dates, on or after Jan. 1, 2017.
