The conforming mortgage limit between regular mortgages and
jumbo mortgages won't rise in 2007, but at least it won't fall.
But if home values fall again next year (as they did this year), government regulators might decrease the conforming limit in 2008. 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. The conforming limit marks the maximum loan size that Fannie and Freddie may buy or guarantee. A mortgage that's bigger than the conforming limit is called a jumbo loan. Rates on jumbo mortgages tend be one-eighth to one-quarter of a percentage point higher than comparable conforming mortgages. You can check the rates of both types of loans on Bankrate's
mortgage search tables.
The conforming limits
The conforming limit will remain $417,000 for single-family houses in the continental United States. It will remain $625,500 in Alaska, Hawaii, Guam and the U.S. Virgin Islands.
Normally, 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. Today the board reported that the average U.S. house price fell $501 in the 12 months ending in October. 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 and Freddie announced two weeks ago that it 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 banking world. No sudden mortgage moves, please
Lowering the conforming limit without giving ample warning could cause problems because it sometimes takes lenders a few months to sell their mortgages on the
secondary mortgage market.
Here's why that could cause a problem. Let's say a bank underwrote a $416,500 mortgage in late October, just barely inside the conforming limit. Then, a month later, OFHEO lowered the conforming limit to $416,350. If the bank were unable to sell the loan before Jan. 1, it might be stuck with keeping the loan on its books. Or it might have to sell the loan on Wall Street at a loss. OFHEO doesn't want to force lenders into either of those circumstances. The conforming limit rises almost every year -- but not always. It has gone down only once in the last 26 years, when the limit fell $150 in 1990, to $187,450. It remained unchanged in 1994 and 1995. It went up 15.95 percent in 2006, the biggest increase in memory. Conforming limits for multifamily homes will remain the same, too.  | | Other conforming limits: | | | |
The limit for second mortgages remains $208,500 in the continental United States and 50 percent higher in Alaska, Hawaii, Guam and the Virgin Islands. FHA-insured mortgages
The Federal Housing Administration soon will decide on the limits for
FHA-insured mortgages. Those limits vary by county, depending on how expensive the houses are -- from a low of $200,160 in cheap places such as Lubbock, Texas, to a high of $362,790 in expensive places such as Los Angeles.
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