The FHFA has announced new loan limits for 2015. A number of counties and metro areas will see an increase in their loan limits in 2015, which is important in this tight credit environment. As prices rise with the improving market, these limits must keep up, or credit worthy borrowers will have no outlet for financing and be unable to purchase a home.
The Federal Housing Finance Agency (FHFA) oversees Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. Each year, the FHFA determines the maximum loan size that the agencies can finance. Loans with balances above the limits are referred to as “jumbo” and must be financed by banks or in private label securities (PLS). There is a national “floor” to local limits of $417,000, but some areas with higher median homes prices are granted limits that go above this, but not higher than $625,500.
Financing can be cheaper by the jumbo route, but in the current market access is highly restricted to pristine borrowers with high minimum down payments, high credits scores, low debt-to-income ratios and large amounts of reserve funds, requirements well in excess of those in the conventional space. Despite low current default rates on new production, Banks and PLS investors hurt in the subprime meltdown last decade have been reticent to re-enter the non-pristine portion of the jumbo market without improved practices, protections and a sound legal framework. The FHFA’s director halted plans last fall to lower loan limits in an attempt to “crowd” in private capital as the fundamentals of the PLS market were not yet in place.
As local median home sale prices rise in the recovery, it will become increasing important that the FHFA keep up with conditions, or borrowers pushed into the jumbo portion of the market may not be able to find financing. In 2015, the agency will increase loan limits in 46 counties. Loan limits are determined at the county level, but are the same across metro areas. Thus, the loan limit for all ten counties in the Denver metro areas was raised from $417,000 in 2014 to $424,350 in 2015, an increase of $7,350. Boulder (4.7% increase), Baltimore (9.5%), and Napa (3.9%), will all experience significant increases in their loan limits, but the largest increase was in the Boston (10%) metro area where the limit will rise by $47,150 to $603,750.
The FHFA’s action to raise limits in 2015 will improve access to credit for many borrowers in affected areas. But in the years ahead, the FHFA’s responsiveness to changes in local conditions will grow in importance until health is restored to the jumbo sector.
Counties with higher loan limits in 2015: CLICK HERE