US Government To Support Mortgages Over $1 Million For First Time As Home Prices Ebb At Record Highs

The baseline conforming loan ceiling for mortgages sponsored by Fannie Mae and Freddie Mac in 2023 will be $726,200, up 12.21%, or $79,000, from 2022, according to a report issued Tuesday by the Federal Housing Finance Agency (FHFA).

What Happened: The federal government will support mortgage loans over $1 million through GSEs for the first time ever. The new ceiling loan limit for one-unit buildings in specified high-cost areas is $1,089,300, or 150% of $726,200.

Different loan limit computations are established by special law requirements for Guam, Alaska, Hawaii and the U.S. Virgin Islands. The base loan amount in these regions will similarly be $1,089,300 for one-unit houses.

The FHFA’s increase in the conforming loan limit is calculated using a formula based on property prices, noted the Wall Street Journal.

After the third quarter’s house price data is available, the FHFA sets the conforming loan limitations by comparing home prices year over year and adjusting the limit by the appropriate amount. Even if home prices decline, the ceiling doesn’t change; nevertheless, if home values increase year over year, the ceiling does.

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According to a statement released by the FHFA on Tuesday, home prices rose 12.21% on average between the third quarters of 2021 and 2022, raising the baseline conforming loan limit by the same amount in 2023.

Why It Matters: Even if home prices are still stubbornly high, the increase in conforming loans will make it easier for purchasers to finance one-unit homes at the higher end of the price range. It will also rekindle the argument over whether the government ought to support mortgages worth up to $1 million.

The baseline conforming loan limit was raised by 18% by the FHFA to $647,200 in 2022. The base loan amount for mortgages sponsored by Fannie Mae and Freddie Mac has increased by $302,100 during the last six years.

Numerous nonbank lenders acted prematurely by boosting the conforming limitations on agency-eligible mortgages before the FHFA made a formal announcement because they were desperate for business in a high-rate environment.

The conforming cap was raised to $715,000 by Rocket Companies Inc RKT, the second-largest lender in America, through its wholesale subsidiary in early September.

The biggest lender in the country, United Wholesale Mortgage UWMC, a rival of Rocket, Pennymac, the now-defunct Finance of America Mortgage and wholesaler Homepoint all followed shortly after.

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Though sooner than in previous years, it was not unexpected that lenders would raise loan limits prior to the FHFA’s decision in November. Lenders didn’t increase expected conventional loan ceilings in 2021 until early October, when rates were still in the low 3% area.

A method for raising the conforming loan limits for Fannie Mae and Freddie Mac was established by the Housing and Economic Recovery Act of 2008. The baseline may only be raised if property prices reached their pre-recession levels, according to the law.

Eight years later, in 2016, the FHFA boosted compliance limitations for the first time in 10 years, fulfilling that requirement.

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Photo: rawmn via Shutterstock