October 1st: How Lower Loan Limits Will Affect Housing in DC

by Mark Wellborn


Back in February, the Obama administration issued a report for how to reduce government support of the mortgage market. One aspect in that report that has been back in the news recently is that, on October 1st, the temporary increase on conforming home loan limits will expire, effectively reducing the limit to $625,500 in the DC area.

Over two years ago, the Housing and Economic Recovery Act of 2008 upped the limit on conforming home loans (the maximum size of a loan Fannie Mae and Freddie Mac can guarantee) in expensive areas like the Washington Metropolitan area from $417,000 to $729,750 because the availability of those size loans in the private market all but disappeared. The insurance that loans up to $729,750 would be backed was reinstated in the economic stimulus bill passed at the start of the Obama administration, and was renewed again last year.

Today, as Rep. John Campbell (R., Calif.) and Rep. Gary Peters (D., Mich.) propose legislation that would replace Fannie Mae and Freddie Mac with private companies that issue mortgage-backed securities with explicit federal guarantees, UrbanTurf decided to take a closer look at how the mortgage process currently works and how it would change come October 1st.

These days, if a lender puts a borrower’s loan application through Fannie Mae and Freddie Mac’s Desktop Underwriter (an automated underwriting system), and it is approved, then the government assumes the risk of a borrower defaulting on a loan up to $729,750, not the lender. However, on October 1st, the default risk for loans over $625,500 in areas like DC will fall to the lenders, not the government.

What the change means for borrowers is likely higher down payments and interest rates, and dealing with more stringent underwriting guidelines from lenders, Bill Slosberg of Falls Church-based Acacia Federal Savings Bank told UrbanTurf. Slosberg also noted that the lowering of limits could also mean that houses priced above a certain point would need price adjustments, and he is not alone in this assessment.

“A property might not sell for the same price as it would have with jumbo loan limits up to $729,000, because of less availability for financing,” local housing expert Stephen Fuller told UrbanTurf back in February. “If demand is weakened, then prices would be affected.”

Slosberg echoed Fuller recently, speaking of a ripple effect that could occur in the DC region later this year.

“The new loan limits will consequently limit the pool of buyers for homes in a certain price point, which means that sellers might be forced to lower prices,” he explained. “So, for example, if a home in Alexandria that once sold for $800,000 is forced to sell for $750,000, then the price on a similarly-sized home in Fairfax will be forced to drop, and the ripple effect will continue as you get further out.”

While it’s hard to predict what exactly will happen as a result of the lowering of limits, both Fuller and Slosberg think that the October 1st change will likely spur activity in the area housing market ahead of the fourth quarter, since buyers will be racing to beat the deadline and get cheaper financing.

See other articles related to: mortgages, lending reform, interest rates, freddie mac, fannie mae

This article originally published at http://dc.urbanturf.com/articles/blog/october_1st_how_lower_loan_limits_will_affect_housing_in_dc/3479


  1. Suzanne Des Marais said at 1:56 pm on Thursday May 12, 2011:

    This week the National Assocation of Realtors(r) is holding their annual Mid-Year meetings in DC.  There are literally thousands of Realtors(r) up on The Hill this week talking to their Senators and Representatives about this and other housing-related issues.  This is just one legislative or regulatory issue that could significantly impact the DC market in the near future.

  1. Eric said at 3:02 pm on Thursday May 12, 2011:

    Very informative article! Are there any details on the bill that was proposed today?

  1. lauren said at 3:15 pm on Thursday May 12, 2011:

    Am I the only one not really bothered by this? The limit of $625k is still pretty high, even for DC. And if you’re looking at a range higher than that, should you really need gov’t subsidies?

  1. Mike said at 3:31 pm on Thursday May 12, 2011:

    @Lauren, I think it’s easing off the top of $729k.  If it dropped to the $417k over night, the local real estate market would grind to a trickle and property values would start dropping rapidly as demand drops.  I would guess that over the next 3-4 years, the conforming rates will come down to whatever the market will bear and we will see easing of prices that correspond with higher interest rates and lower conforming (or hopefully) market rates.

  1. Suzanne Des Marais said at 3:55 pm on Thursday May 12, 2011:

    The issue is not “government subsidies” for people buying up to $729,000.  The issue is what happens to the cost of financing for properties above $625k, which represents a substantial portion of our market in DC.  Interest rates and down payments for jumbo loans become higher and more difficult to qualify for (despite the credit-worthiness of the potential borrower).  If people can’t afford financing or otherwise can’t get it, homes don’t sell.

  1. lauren said at 4:05 pm on Thursday May 12, 2011:

    That’s what I mean by subsidy… by assuming some of the risk, the Feds are subsidizing the market by making borrowing cheaper. I realize they’re not directly handing cash to the buyer. It’s just hard for me to believe that banks will stop making loans to buyers they believe are credit-worthy, and there will no be no house sales in DC over $625k. Buyers will just have to pay the full price of the loan, and maybe prices will come down a little to accommodate. I don’t see why it’s such a cause for alarm.

  1. J said at 9:21 am on Friday May 13, 2011:

    To be clear, the concern is not homes priced above $625K.  A buyer of a $625K house is not going to borrow 100% of the purchase price, therefore the issue is not for homes priced over $625K.  The real burden begins for the borrowed money which exceeds $625K, which would translate to homes priced over $695K for buyers making down payments of 10%.  At $695K, and a 10% down payment, the mortgage would be $625K, which would conform with the new loan limits.  For buyers making 10% down payments, they will pay slightly higher interest rates on ONLY THE ADDITIONAL MORTGAGE DEBT ABOVE $625k, for a home priced over $695K.  If the home is priced at $750K for example, the higher interest rate would apply to 90% of the additional $55K.

  1. lauren said at 9:46 am on Friday May 13, 2011:

    @ J, that’s another good point. I did know that the new rules would only apply to loans over $625k, not house sales over $625k (although the wording in my last comment was a little sloppy). But I didn’t realize that even for loans over $625k, the new rates will only apply to the amount of the mortgage in excess of that amount. So the whole thing is really even more minor. It reminds of me of when people freak out about tax increases, of say, income over $200k when their income is $210k.

Join the discussion

UrbanTurf now requires registration in order to post comments. Register here, or login below if you are already registered.

Click here if you forgot your password.

DC Real Estate Guides

Short guides to navigating the DC-area real estate market

We've collected all our helpful guides for buying, selling and renting in and around Washington, DC in one place. Visit guides.urbanturf.com or start browsing below!

Northern Virginia

Profiles of 14 neighborhoods across Northern Virginia

Looking to Give People A Reason to Stay Past 6pm
Happily Straddling the Line Between City and Suburb
Columbia Pike
Arlington’s Neglected Stepchild is Getting a Makeover
Crystal City
Turning Lemons into Lemonade
Lyon Village
Developing An Air of Exclusivity?
Hitting Its Growth Spurt
An Urban Village Hitting Its Stride
Del Ray
Virginia’s Small Town Near the Big City
Eisenhower Avenue
The Vibrancy Might Take a Few Years
The Quiet Neighborhood By the Beltway
Old Town
Mayberry By The Potomac
132 Commerical-Free Acres
Downtown Falls Church
Staying the Same in the Midst of Change
Tysons Corner
Radical Change Could Be On The Way

See more Northern Virginia »


Profiles of 14 neighborhoods in suburban Maryland

Small-Town Living in the State Capital
Bedroom Community Gets Buzzing Cache
Cabin John
In With The New While Maintaining the Old
Chevy Chase
Affluence, Green Lawns and Pricey Homes
Downtown Silver Spring
Experiencing a Resurgence After a Bumpy History
A Suburb on Steroids
Rockville Town Square
Despite the Dynamism, Still Somewhat Generic
Takoma Park
More Than a Little Bit Quirky
A Foodie Magnet on the Verge of Change
Capitol Heights
Kudzu, Front Porches and Crime
Glass Half Full or Half Empty?
Mount Rainier
Artists, Affordable Homes and A Silo Full of Corn
National Harbor
A Development Rises Next to the Potomac
Riverdale Park
A Town Looking For Its Identity

See more Maryland »

Northwest DC

30+ neighborhood profiles for the city's biggest quadrant

16th Street Heights
DC's Sleeper Neighborhood
Where (Almost) Everyone Knows Your Name
AU Park
One of DC’s Last Frontiers Before the Suburbs
DC’s Northern Neighborhood on the Cusp
DC’s 535 House Neighborhood
Cathedral Heights
Do You Know Where That Is?
Chevy Chase DC
Not to Be Confused With the Other Chevy Chase
Cleveland Park
Coming Back After A Rough Year
Columbia Heights
DC’s Most Diverse Neighborhood, But For How Long?
An Island of Serenity East of the Park
Dupont Circle
The Best of DC (For a Price)
Foggy Bottom & West End
Where the Institutional Meets the International
Forest Hills
Ambassadors and Adventurous Architecture
Fort Totten
Five Years Could Make a Big Difference
Foxhall Village
350 Homes Just West of Georgetown
Friendship Heights
A Shopping Mecca With a Few Places to Live
History, Hoyas and H&M
Glover Park
One of DC’s Preppier and More Family-Friendly Neighborhoods
A Posh View From Embassy Row
LeDroit Park
A Quiet Enclave in the Middle of the City
Logan Circle
Trendy Now, But Not By Accident
Mount Pleasant
Sought-After Homes Surround Main Street in Transition
Mount Vernon Triangle
From Seedy to Sought-After
The Long, Skinny Neighborhood at the City’s Northwest Edge
Park View
It’s Not Petworth
Penn Quarter/Chinatown
DC’s Go-Go-Go Neighborhood
Getting a Vibrancy of Its Own
The Duke’s Former Stomping Ground
Shepherd Park
DC’s Garden of Diversity
Spring Valley
A Suburb With a DC Zip Code
Not To Be Confused With Takoma Park
Not Quite Like Its Neighbors
U Street Corridor
The Difference a Decade Makes
Woodley Park
Deceptively Residential
Adams Morgan
No Longer DC’s Hippest Neighborhood, But Still Loved by Residents

See more Northwest DC »

Southwest DC

The little quadrant that could

Southwest Waterfront
A Neighborhood Where A Change Is Gonna Come

See more Southwest DC »

Northeast DC

Profiles of 10 neighborhoods in NE

New Development Could Shake Up Pastoral Peace
A Little Bit of Country Just Inside the District’s Borders
Not to Be Confused With Bloomingdale
H Street
A Place To Party, and To Settle Down
The Northeast Neighborhood That Few Know About
Michigan Park
A Newsletter-On-Your-Doorstep Community
Evolving from a Brand to a Neighborhood
Ripe for Investment Right About Now
The Difference 5 Years Makes
Big Houses, A Dusty Commercial Strip and Potential

See more Northeast DC »

Southeast DC

6 neighborhoods from Capitol Hill to East of the River

Capitol Riverfront
Still Growing
Hill East
Capitol Hill’s Lesser Known Neighbor
Congress Heights
Gradually Rising
Notable for Its Neighborliness
Historic Anacostia
Future Promise Breeds Cautious Optimism
Eastern Market
A More European Way of Living

See more Southeast DC »

Upcoming Seminars ▾