Mortgage Loan Limit to Rise 16%
Tens of thousands of prospective California home buyers will benefit from a decision Tuesday by mortgage giants Fannie Mae and Freddie Mac to raise by 16% the ceiling on home loans they will purchase.
Borrowers seeking mortgages under the new limit of $417,000 -- up from $359,650 -- will find it easier to qualify and will get a break on interest rates, experts said. The annual increase takes effect Jan. 1.
“This should generate more activity because it would be cheaper for people to get loans,” said John Karevoll, chief analyst at DataQuick Information Systems, a La Jolla-based research firm that tracks property transactions.
It is the largest percentage jump in the “conforming loan” limit since 1987, when the cap grew by 15%.
Rates on loans conforming to Fannie Mae and Freddie Mac limits are usually between a quarter to a half-point lower than rates on “jumbo” nonconforming loans. That’s because the federally chartered mortgage giants can borrow more cheaply than private mortgage finance companies.
If the new limit had been in effect this year, about 60,000 more California home buyers, 11% of the total, would have qualified. So far this year, 358,000 of the 536,000 California home buyers took out mortgages valued at $417,000 or less, according to DataQuick.
Many in the housing industry, however, said the increase in the limit should have been more substantial, given the surge in home prices statewide.
The median California home price was $454,000 as of Oct. 31, according to DataQuick. The median is the point at which half of all homes are sold for more and half for less.
“While this is good news for many home buyers, Fannie Mae’s and Freddie Mac’s new loan limits do not go far enough to benefit most home buyers in California,” said Vince Malta, president of the California Assn. of Realtors.
That view was echoed by the California Assn. of Mortgage Brokers, another large trade group that gains when more homes are sold.
The brokers’ group has been urging Congress for the last several years to designate California a “high-cost state” that would allow loan limits to be adjusted up to 150% of the median home price in specific geographic locations. Alaska and Hawaii are the only states considered high-cost states. A pending bill has passed the House of Representatives and is awaiting Senate action.
Fannie Mae and Freddie Mac, which buy loans and then repackage them for sale to investors, raise their conforming loan caps when housing prices move higher. U.S. home prices rose 13% in the second quarter over the year-earlier period as the housing boom that began in California and the East Coast moves inland.
On Tuesday, the Commerce Department reported that sales of new single-family homes climbed to a record annual rate of 1.42 million units in October, a 13% increase from September and the largest percentage gain in more than a dozen years.
Nonetheless, California’s hot housing market has started to show signs of cooling, as the rate of appreciation begins to moderate from annual gains that had been as high as 20% or more.
Another sign of slowing came Tuesday when the state’s largest builder trade group reported that 16% fewer permits for all types of residential housing were issued in October compared with a year earlier.
The decline, while sizable, was considered something of a statistical fluke, said Ben Bartolotto, research director of the Construction Industry Research Board. He said a tightening of state energy standards caused builders to take out more permits last year and in the months leading up to the change, which took effect Oct. 1.
Starts of single-family homes fell 3% last month compared with a year earlier, the research group said. At the current pace, California builders are expected to take out about 200,000 permits by year end, making it one of the busiest years for home construction in 15 years.
Many lenders expected Fannie Mae and Freddie Mac to raise the conforming loan cap to at least $400,000 and had already begun adjusting their own limits accordingly.
For example, Quicken Loans, an online mortgage lender, announced it had raised its limit last month. Philip X. Tirone, a Los Angeles mortgage broker and author of a book on credit, said several other lenders were quietly doing the same since the fall.
