FHFA Announces Maximum Conforming Loan Limits for 2019
The Federal Housing Finance Agency (FHFA) has announced its new Conforming loan limits for 2019. During the announcement, FHFA increased their limits for the loans acquired by Freddie Mac and Fannie Mae. FHFA is increasing its loan limits for the third straight year in a row after the years between 2006 -2016 when it did not increase loan limits.In what is seen as a complete reversal of course from FHFA’s previous policy, the loan limits will increase by 6.9%. This increase will target all but a few counties in the US which are considered high-cost areas. Nevertheless, the new conforming loan limits for 2019 are sure to keep pace with increasing housing costs. Clark County, Nevada (Las Vegas), for example, will experience a $31,000 increase in allowable lending; it will hit $484,350 up from $453,100 in 2018.
Baseline loan limitIn compliance with the Housing and Economic Recovery (HERA) requirement that Freddie Mac and Fannie Mae adjust their loan limits each year, FHFA implemented a 6.9% increase. According to FHFA’s third quarter House Price Index (HPI) report of 2018, house prices shot up between the third quarter of 2017 and 2018. The 6.9% increase, however, will not be accounted for 47 counties which witnessed fairly stable house prices during the same period.
Jumbo loansIn these high-cost areas, 115% of the median home value exceeds the conforming loan limit baseline value. Areas which meet this specification ordinarily have limits that exceed the baseline loan limit. HERA establishes the maximum loan limit in those areas as a multiple of the area median home value while setting a “ceiling" on that limit of 150 % of the baseline loan limit. In 2018, the median home value escalated in these high-cost areas making the loan limits to go up. In the new report for 2019, these high-cost areas will have a loan limit of $726,525 which is basically 150% of the regular $484,350 loan limit. Additionally, statutory provisions outline a special home limit value for the US Virgin Islands, Guam, Alaska, and Hawaii. In these specific areas, the baseline loan limit for one-unit properties will be $726,525. The median home value may, however, not reflect this high amount.
Why FHFA sets conforming loan limitsEstablished by HERA, FHFA is a federal body charged with the mandate of regulation and oversight of the two national mortgage giants- Freddie Mac and Fannie Mae and 11 other government home loan banks. FHFA sets loan limits to ensure that the two federal mortgage companies operate in a responsible way even as they provide housing finance to millions of Americans. FHFA sets the loan limits Freddie and Fannie can take up after carefully examining the risk factors involved and the market demands. In doing so, their capacity is built to not only stabilize the house prices but also avail loans that reflect the prevailing market situations. Homebuyers would find it difficult to purchase homes if the loan limits were to remain constant despite market dynamics.
Why loan limits increaseThe loan limits increase as a natural response to the market dynamics which may include a strong and growing economy. If home prices in the market increase by, say 5%, the FHFA will increase their limits by a similar amount. This is greatly in fulfillment of the FHFA’s mandate to make homeownership within reach of the average American. While inflation could be a cause, the reduction in the dollar's value may not be the culprit for spikes in prices. An increase in the home prices could be because if a couple more reasons. When people have more disposable income, they could agree to buy houses at more expensive prices. Similarly, when the demand for houses spikes within a specific region, the prices are set to follow suit in response. It is, therefore, the duty of FHFA to harmonize the house prices and the market value for stability. The new limits are there to make homeownership more affordable to the average folk. Similarly, real-estate developers will take the cue from the federal mortgage agencies. In doing so, they will construct more housing units in response to the growing need. The conforming loan limits for 2019 are now available. And check out what the limits were back in 2017!!!!
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