The Wall Street Journal recently reported on the government’s plan to reduce the maximum size of a home loan backed by Fannie Mae and Freddie Mac in early 2014. Right now, Fannie and Freddie will back loans of up to $417,000 in most of the country and up to $625,500 in more expensive housing markets.
From the WSJ:
The Federal Housing Finance Agency, which regulates Fannie and Freddie, hasn’t announced how far it will drop the loan limits, which would take effect Jan. 1, 2014, and a spokeswoman declined to elaborate on specifics. But in a statement, the agency said a “gradual reduction in loan limits is an appropriate and effective approach to reducing taxpayers’ mortgage-risk exposure…and expanding the role of private capital in mortgage finance.”
In early 2009, 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 places with high homes prices 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 in 2010. It wasn’t until late-2011 that the loan limits in more expensive areas dropped back to $625,500.
These days, if a lender puts a borrower’s loan application through Fannie Mae and Freddie Mac’s automated underwriting system, and it is approved, then the government assumes the risk of a borrower defaulting on a loan up to $625,500, not the lender. As the government-backed loan limits plan to drop in the early part of next year, it will likely result in higher down payments and interest rates for borrowers, and dealing with more stringent underwriting guidelines from lenders.
This article originally published at http://dc.urbanturf.com/articles/blog/fannie_freddie_to_drop_loan_limits_in_2014/7530
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