FHFA announces loan limits will stay

November 26, 2013

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According to an announcement by the Federal Housing Finance Agency, loan limits by government-sponsored enterprises Fannie Mae and Freddie Macwill not be reduced next year.

Conforming loan limits backed by Fannie Mae and Freddie Mac were raised to $417,000 for most areas of the U.S. in 2008 as a result of the housing crisis. For areas like New York City and Los Angeles, where home prices and the cost of living are higher than the national average, the conforming loan limit is $625,500.

Fannie Mae and Freddie Mac were seized under government control in 2008 and now guarantee about two-thirds of all mortgages. In an effort to push borrowers back into the private market, the FHFA proposed reducing loan limits.

However, after several real estate groups, including the National Association of Realtors and the Mortgage Bankers Association, protested the changes, the FHFA has decided to keep the current lending standards. The industry groups argued that the changes would stall the recovery of the real estate market, as it would be harder for borrowers to get qualified and approved for a home loan. The changes could impact first-time home buyers the most, as they are less likely to be pre-qualified under current lending practices.

Over the summer the FHFA announced it would not reduce loan limits without a six-month warning, meaning borrowers will be able to find the same low-cost mortgages heading into 2014. The announcement isn't likely to encourage more home sales or mortgage activity, but could prevent a decline in the housing market.

"The housing market isn't going to flourish because of this announcement, but in some markets this eliminates a threat for 2014," Jaret Seiberg, a senior policy analyst with Guggenheim Securities, told Reuters. "This is broadly positive for housing, but it's not the secret cure that's going to give us a healthy market."

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