More on Conforming, Jumbo Home Loan Limit Remaining Unchanged
As announced a couple weeks ago, the conforming loan limit between regular mortgages and jumbo mortgages will remain the same in 2007.
However, if home values fall again next year, government regulators might decrease the limit in 2008.
What are these mortgages?
Conforming mortgages are home loans that conform to standards set by Fannie Mae and Freddie Mac, the government-sponsored enterprises that buy bundles of mortgages and sell them as investments.
Fannie and Freddie act as pumps that keep money circulating through the mortgage financing system, explains Bankrate.com. The conforming limit marks the maximum loan size that Fannie and Freddie may buy or
guarantee.
A loan that’s bigger than the conforming limit is called a jumbo mortgage. Rates on jumbo mortgages tend be one-eighth to one-quarter of a percentage point higher than comparable conforming mortgages.
The conforming home loan limits
The conforming limit will remain $417,000 for single-family houses in the continental United States. It will stay at $625,500 in Alaska, Hawaii, Guam and the U.S. Virgin Islands.
Typically, the conforming limit rises and falls along with house values. The limit is pegged to the change in average house prices from October to October, as measured by the Federal Housing Finance Board.
This October, the average price was $306,258; in October 2005, the average price was $306,759. That’s a drop of 0.16 percent.
Anticipating the drop, the agency that oversees Fannie Mae and Freddie Mac announced two weeks ago that they would not lower the conforming limit for 2007 because such a move would disrupt the mortgage markets.
“If house prices fall, loan limits should reflect that, but we need to ensure an orderly and transparent process for any downward adjustment,” James B. Lockhart, director of the Office of Federal Housing Enterprise Oversight, said at the time.
OFHEO had never gotten around to devising a procedure to deal with a decline in house prices. The agency says it will come up with a plan early next year, so that if house prices fall again, it can lower the conforming limit without wreaking havoc in the mortgage loan banking world.