Mortgage-Market Agencies Lower Loan Ceilings by $150

The ceiling on the size of single-family home loans purchased by the nation’s secondary mortgage-market agencies is declining by $150 to $187,450 next year, the first drop in at least a decade, the government said Tuesday.

Lenders usually charge interest rates a quarter- to a half-percentage point lower on mortgages they sell on the secondary market, compared to loans that exceed the limit.

The Federal National Mortgage Assn. (Fannie Mae) announced the drop in its limit based on October data collected by the Federal Housing Finance Board, which said the average home purchase price was $136,800 in the month, down from $136,900 a year earlier.

The Federal Home Loan Mortgage Corp. (Freddie Mac) followed with a later announcement saying it too was dropping its ceiling for single-family homes to $187,450, effective on mortgage contracts signed after Jan. 1.

Together, the two congressionally chartered but publicly owned agencies help finance nearly one in four of the nation’s residential mortgages. They purchase mortgages from lenders and repackage them into bond-like securities for investors.

Robert M. O’Toole, senior vice president at the Mortgage Bankers Assn. of America, a trade group, said the agencies should have used their discretion and left the ceiling unchanged. The slight drop will affect few home buyers but he complained that it sets a bad precedent and will prove somewhat disruptive for lenders.

According to Fannie Mae, mortgages purchased in the first nine months of this year averaged $83,000. Only 5% exceeded $168,700, the previous year’s limit.

In the past few years, rapid increases in the ceiling have helped buyers in high-priced markets obtain a lower interest rate. This year, home prices have cooled in expensive New York and New England markets, but they continue to climb at double-digit rates in California.

The ceiling was $115,000 in 1985, $133,250 in 1986, $153,100 in 1987, $168,700 in 1988 and $187,600 in 1989.

The 1990 decline in the index “certainly indicates that home prices have flattened out a little bit. It probably is a reasonably accurate reflection of what’s happened in the real estate market,” O’Toole said.

It is the first decline since the index was established in 1980.