Fannie Mae and Freddie Mac just announced loan limits for 2011, and they have remained unchanged from 2010. Each year Congress will analyze average home prices from across the nation and adjust the loan size as needed. Ever since I first got in the mortgage business in 1986, the loan limits would mostly increase each year. But this time they are staying the same, as they have done in many recent years.
Below is an interesting history of the Conventional, Conforming loan limit, going back to my first year in the mortgage industry:
2008 417,000 2008**HB 729,750
2009 417,000 2009**HB 729,750
2010 417,000 2010**HB 729,750
2011 417,000 2011**HB 729,750
It is interesting that the only time the loan limit dropped was from 1989 to 1990, during that period’s recession. And we have had a major recession from 2008 to date, and the loan limit has held and not dropped.
Not only has the loan limit not dropped, in 2008 Congress created the High Balance (**HB) Conforming loan, which allows for a low rate for “Conforming” loans between $417,001 to $729,750. These loans sizes would normally be called a Jumbo loan and be charged a higher rate, but thanks to this new class of loan they are now a High Balance, aka Conforming-Jumbo, aka Conforming “Plus”. So effectively, starting in 2008 the loan limit increased, massively! It is good news for homebuyers and refinance borrowers in this loan size range, but are the rest of the taxpayers absorbing massive risk at a time they do not need to be? Fannie Mae and Freddie Mac are beyond broke, yet Congress saw fit to increase the risk, on the backs of the taxpayer.
I wonder what would happen if the political geniuses decide to privatize FNMA and FHLMC? Or will Congress decide taxpayers should continue to subsidize mortgage borrowers? Interesting times. I don’t think the public quite realizes the dire straits the mortgage industry is in, and the literal lifeline it is on thanks to the U.S. Government. Whenever government starts to meddle, there is always fireworks, usually bad choices, and ultimately something that needs to be fixed down the line. Let’s hope they get this one right, home ownership is too important to the economy.