US raises ceiling on government guaranteed mortgages to nearly $ 1 million

The highest value of US mortgages eligible for federal government support has been raised to nearly $ 1 million, reflecting soaring house prices during the coronavirus pandemic.

The Federal Housing Finance Agency said on Tuesday that the largest loan for single-family property in high-cost areas, including New York and Los Angeles, which can be purchased by government-sponsored mortgage lending agencies, Fannie Mae and Freddie Mac, will rise to $ 970,800 in 2022..

This is an 18% increase from the so-called compliant loan limit set in 2021. In most of the United States, the limit will increase from $ 548,250 to $ 647,200.

The increases will raise questions about whether Fannie and Freddie, who were taken over by the federal government during the subprime mortgage crisis, are helping fuel a furious rise in home prices.

FHFA data also released on Tuesday showed house prices rose 18.5% year-on-year in the third quarter of 2021, the highest all-time high in its quarterly series.

“Compared to previous years, the 2022 compliant loan limits represent a significant increase due to the historic appreciation in home prices over the past year,” said Sandra Thompson, FHFA Acting Director, in a statement.

The Housing and Economic Recovery Act 2008 requires that the baseline-compliant loan limit be adjusted annually to reflect changes in national house prices.

According to Walt Schmidt, who heads mortgage strategy at FHN Financial, the policy has “a bit of a self-fulfilling nature,” as higher house prices push the limit higher, which further supports the price hike.

“This increase in loan size really extends credit to borrowers in the new and expanded loan size compartment who may be a bit marginalized compared to a FICO.” [credit] mark the point of view, ”said Schmidt.

Fannie and Freddie guarantee much of the mortgages and have been under government supervision since 2008 when they were bailed out in the housing crash.

The Trump administration had offered to reprivatize Fannie and Freddie, but the effort ultimately failed.

The pandemic has propelled demand for larger suburban homes. U.S. home prices rose at a slightly slower pace in September, according to S&P CoreLogic Case-Shiller Index data released on Tuesday.

William Doerner, FHFA’s supervising economist in its research and statistics division, said that while prices rose “exceptionally fast”, market dynamics “peaked in July as month-to-month gains the other have moderated “.

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