Loan Limits for 2011

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:

1986 133,250
1987 153,100
1988 168,700
1989 187,600
1990 187,450
1991 191,250
1992 202,300
1993 203,150
1994 203,150
1995 203,150
1996 207,000
1997 214,600
1998 227,150
1999 240,000
2000 252,700
2001 275,000
2002 300,700
2003 322,700
2004 333,700
2005 359,650
2006 417,000
2007 417,000
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.