Lower conforming jumbo loan limits are coming in September.
There is a statutory limit to the size of a mortgage that can be purchased by the FHA, Fannie Mae, or Freddie Mac. This is known as the conforming loan limit. The limit is set at $417,000 by Congress in order to limit the risk that the GSEs can take on in any single mortgage. In certain high cost areas (where the median home price exceeds the conforming loan limit), the conforming limit is higher, up to $729,750 (175% of the conforming limit). Loans that fall between $417,000 and $729,750 are known as high-balance conforming or conforming jumbo loans.
The upper limit for a high balance jumbo mortgage was raised to $729,750 in 2008 in response to the housing crisis. The idea was to stimulate sales of these homes and to more equitably spread access to GSE and government mortgage funding. This increase was temporary, and is set to expire on September 30, 2011. At this point, the conforming jumbo limit will fall to $625,500.
The result of this will be higher mortgage rates for people purchasing homes that exceed the new high balance conforming limit. This will reduce the pool of eligible buyers for these homes, and probably hurt the value of such houses. Between now and September, we will likely see people rush to close their loans before the deadline.
It is certainly possible that Congress votes to keep the current loan limits, although it doesn’t seem particularly likely. Allowing jumbo loan limits to drop allows politicians to show that they are trying to curtail government involvement in the housing finance sector without changing something that would impact a lot of borrowers (such as taking real steps toward winding down Fannie and Freddie – which I don’t think would be prudent at this time).
The takeaway is this: if you are looking to get or refinance a jumbo conforming mortgage, now is the time. After September, it could cost you significantly more to get this type of mortgage.
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