In a significant update for the mortgage industry, the Federal Housing Finance Agency (FHFA) has announced that the baseline conforming loan limits for mortgages backed by Fannie Mae and Freddie Mac will be raised to $766,550 in 2024. This marks a 5.5% increase from the current limit of $726,200. This change reflects a more measured pace in loan limit increases, in line with the overall trend in housing prices. Here is a link to FHFA announcement.
The methodology behind the FHFA’s decision is grounded in robust home-price data, specifically from the third quarter of each year. The agency meticulously tracks the year-over-year changes in home prices and adjusts the conforming loan limits accordingly. In 2023, for instance, the FHFA reported a substantial 12.21% increase, influenced by a particularly strong housing market and lower mortgage rates.
The latest adjustment, however, is a result of an average 5.56% increase in home prices between the third quarters of 2022 and 2023. This move is crucial for prospective homebuyers, particularly in the higher-end market. Loans that previously fell into the jumbo market category, primarily dominated by banks, can now be more easily financed under these new limits. This shift is particularly notable given the impending challenges banks face with increased capital requirements.
The revised conforming loan limits also reignite discussions about the government’s role in backing high-value mortgages, potentially up to $1 million. For areas where the local median home value exceeds 115% of the baseline limit, the maximum loan limit is set at 150% of the baseline, which in 2024 will be $1,149,825. This ceiling is also applicable in specific territories like Alaska, Hawaii, Guam, and the U.S. Virgin Islands.
Here is a link to FHFA announcement.
Over the past seven years, there has been a noteworthy increase of $342,450 in the baseline loan limits for Fannie Mae and Freddie Mac-backed mortgages. This trend is a reflection of both the recovering housing market and the competitive dynamics within the mortgage industry.
In the backdrop of these changes, lenders have also adjusted their strategies. While in 2022, lenders proactively raised conventional loan limits ahead of the FHFA’s announcement, the pace has been more cautious this year. Notable industry players like Rocket Mortgage, Guaranteed Rate, and United Wholesale Mortgage have already adjusted their limits, indicating a keen response to market dynamics and competitive pressures.
These developments trace back to the 2008 Housing and Economic Recovery Act, which established the formula for adjusting conforming loan limits. Notably, the baseline could only increase once home prices rebounded to pre-recession levels, a milestone achieved in 2016. Since then, the ceiling has consistently risen in response to year-over-year increases in home prices, underscoring the resilience and dynamism of the housing market.
This latest update from the FHFA is a critical indicator of the evolving landscape in the mortgage industry, reflecting both market trends and regulatory frameworks. It underscores the importance of staying informed and adaptable in a sector that is integral to the financial well-being of millions of Americans.
Here is a link to FHFA announcement.
