President Obama has signed a resolution passed last Thursday by Congress extending the current limits for Fannie Mae, Freddie Mac, and Federal Housing Administration (FHA) loans through 2010.
The conforming loan limits determine the maximum size of a mortgage that Government Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac can buy or guarantee. Non-conforming or jumbo loans typically carry a higher mortgage interest rate than a conforming loan, increasing the monthly payment and negatively impacting affordability.
Currently, as a result of the economic stimulus plan, the conforming loan limit is $417,000 for most areas in the U.S., but $729,750 in high-cost areas, including many in California. The loan limits were set to expire at the end of this year, and could have been lowered to $625,500 for high-cost areas. If the current loan limits had been reduced to $625,500 for high-cost areas, lenders likely would have had to adjust their loan underwriting standards to align with the new limits, to ensure the loans can be purchased or guaranteed by Fannie, Freddie and the FHA.
Higher conforming loan limits are especially critical for California, where more than 80 percent of all loans are financed by Fannie Mae, Freddie Mac or FHA, and will help maintain the positive signs we are emerging in California’s mortgage market.
While home prices in California have declined, the demand for housing has not. The market has been dominated by first-time home buyers who have faced a shortage of financing opportunities. The loan limits are set at 125 percent of local median home sales prices, up to a maximum of $729,750 in high-cost areas, including many regions in California. Sales in move-up and high-end markets have been constrained this year; the loan l