October Home Loan Limit Deadline Approaches

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 a regular topic of debate in recent months is that, on October 1st, the temporary increase on conforming home loan limits will expire, effectively reducing government-backed loan limits from $729,750 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 DC 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.

On Saturday, barring a last-minute legislative miracle, the limit on conforming loans will expire. What that means is that the risk of a borrower defaulting on a loan over $625,500 in areas like DC will fall to the lenders, not the government. Currently, 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.

Back in February, Stephen Fuller, a professor at George Mason University and an expert on the DC-area housing market, talked with UrbanTurf about where the effect of the loan-limit decrease would be felt the most.

“In the market where houses are priced in the $500,000 to $1 million range, where jumbo loans are really important, it could keep that market from moving,” he said. “Not only would the interest rates move up [for loans above] $625,000, but also the down payment requirements and qualifications [would increase].”

Fuller noted that if the cost of borrowing rises, that would mean that houses priced above $625,000 would need price adjustments. “A property might not sell for the same price as it would have with jumbo loan limits up to $729,750, because of less availability for financing. If demand is weakened, then prices would be affected.”

Bill Slosberg of Falls Church-based Acacia Federal Savings Bank echoed Fuller’s thoughts on the home price “ripple effect.”

“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 to UrbanTurf in May. “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.”

Ripple effect or not, the consensus seems to be that starting next week, buyers of homes in the upper six-figure range will need to put more money down and will face tougher qualification requirements when applying for a loan. UrbanTurf will continue to monitor the effect of the limit reduction in the coming months.

See other articles related to: loan limits, freddie mac, fannie mae

This article originally published at http://dc.urbanturf.com/articles/blog/october_home_loan_limit_deadline_approaches/4235


  1. FC Resident said at 3:40 am on Wednesday September 28, 2011:

    Oh, God please!

    “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 to UrbanTurf in May. “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.”

    Maybe this will help reduce the artificial prices of NOVA’s over-priced real estate.

  1. RC said at 9:49 am on Wednesday September 28, 2011:

    Agreed—the recent price increases look to me like another [mini-]bubble in the making, especially with the cuts to the federal government due to these times of austerity on the horizon.

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 ▾