The Mortgage Corner

The Federal Housing Finance Agency, the government agency that regulates Fannie Mae and Freddie Mac, has just announced it is keeping conforming loan limits at the same level in 2014 for most areas in the country. Fannie Mae and Freddie Mac can guarantee mortgages up to $417,000 for a one-unit property. Ed DeMarco, head of the Federal Housing Finance Agency, had said in October that the regulator was considering lowering the maximum.

This announcement is huge, needless to say, when both the S&P Case-Shiller Housing Price Index and FHFA conforming price index are at recovery highs. The decision was applauded by the National Association of Realtors; NAR President Steve Brown issued the following statement on the FHFA announcement:

“Realtors welcome today’s announcement from the Federal Housing Finance Agency that the current limits on conforming loans will remain in effect until further notice. As the leading voice for homeownership, NAR opposes lowering the ceiling on loans eligible for backing by the government-sponsored enterprises. Lower loan limits would increase costs for consumers and reduce their access to conventional mortgages.

“There is already enough turbulence in the regulatory environment for mortgage lending,” said Brown. “In January 2014, many changes stemming from the Dodd-Frank Act will go into effect, including the ability-to-repay requirement. In addition, risk retention regulations remain in flux, including the definition of a Qualified Residential Mortgage. Lowering loan limits at this time would create even more confusion and uncertainty, and we would run the risk of reversing the progress that’s been made in the economic recovery.”

Home prices were building steam through September based on S&P Case Shiller whose 20-city index rose an adjusted 1.0 percent in September vs monthly gains of 0.9 percent and 0.6 percent in the prior two months. Very respectable gains swept all 20 cities for the second month in a row, led this time by Atlanta at plus 1.9 percent followed by a string of cities out West where S&P says there’s talk now of a housing bubble.

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Graph: Econoday

The year-on-year rate tells the same story — accelerating appreciation. The year-on-year rate for the 20-city index is at a recovery best of plus 13.3 percent, up 5 tenths from August for the third straight improvement.

Home prices with conforming loan amounts also continued to rise in September but at a slower pace according to FHFA. The September HPI is the twentieth consecutive monthly price increase in the purchase-only, seasonally adjusted index.

The increase was led by a 1.9 percent boost in the East South Central region. Four of nine Census regions showed gains in the latest month while three decreased marginally and two were unchanged. The year-on-year rate for September came in at 8.5 percent, matching the pace in August.

There is conjecture that congressional pressure led to FHFA reversing course. It first announced the possibility of lower conforming limits in September, then put off the limit decline until spring. Now it won’t happen at all in 2004.

This will help housing because the rise in housing prices will already make housing less affordable to many, so buyers and homeowners must rely on conforming loan rates to keep their payments affordable. The current conforming 30-yr fixed rate is 4.0 percent for a 1 pt. origination fee, still in the affordable range as long as the Federal Reserve continues to hold down long term interest rates.

Harlan Green © 2013

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