The Federal Housing Finance Agency announced the conforming loan limit will remain $417,000 for 2009 for most areas in the U.S. but specified higher limits in specific high cost cities and counties. The conforming home loan limit is the maximum size of loans that Fannie Mae and Freddie Mac can purchase in 2009. According to provisions of the Housing and Economic Recovery Act of 2008, the national mortgage loan limit is set based on changes in average home prices over the previous year, but cannot decline from year to year.  Home loan limits for two-, three- and four-unit properties in 2009 will remain at 2008 levels as well: $533,850, $645,300 and $801,950 respectively, for houses in the continental U.S.

The national mortgage limit was left unchanged at $417,000 based on declines in FHFA’s monthly and quarterly house price indexes over the past year. The monthly purchase-only index declined 5.9 % over the 12 months ending August 2008, and the quarterly all transactions index dropped 1.7 % from second quarter 2007 to second quarter 2008.  Virtually every other measure of house prices has also fallen, with many showing even larger declines.

FHA has not yet determined whether it will continue to use a currently existing FHA price index to gauge price movements in future years. For this year, however, all reliable metrics point to lower prices and a price decline of any size is sufficient to determine that the national limit will not change.  Following the provisions of HERA, FHFA has set FHA home loan limits for “high-cost” areas in 2009. These limits are set equal to 115 % of local median house prices and cannot exceed 150 % of the standard limit, which is $625,500 for one-unit homes in the continental U.S. The new limits affect loans purchased by an Enterprise in 2009, unless the home loans were made permanently eligible for purchase under the Economic Stimulus Act enacted earlier in 2008 and has generally larger limits. FHA said it might choose a different method in future years and will seek public comment on the best approach. 

Under rules set forth in the Stimulus Act, loans originated in 2008 and the second half of 2007 are subject to limits of 125 % of local price medians up to a maximum of $729,750. As a result of the difference in the formula for determining high-cost area limits, many of the high-cost area loan limits are different for 2009 than they were for 2008. They are generally lower because of the lower median price multiplier in HERA (i.e., loan limits are 115 % rather than 125 % of median prices) and the lower ceiling ($625,500 rather than $729,750). For mortgage loans originated during the period covered by the Stimulus Act, the higher of those limits and the 2009 limits will apply.  In calculating loan limits, FHFA used median house price estimates calculated by the Federal Housing Administration of the Department of Housing and Urban Development.

According to Erik Hand, president of John L. Scott Real Estate’s Response Mortgage Services Fannie Mae announced that they will impose additional restrictions for mortgage loans between $417,000 and the maximum loan limit. The new restrictions will reduce the maximum loan-to-value ratio from 97 percent of a home’s value to 90 percent.   Since home values have been declining dramatically nationwide, this is a huge setback for homeowners and mortgage lenders trying to provide refinancing solutions.   They plan to roll out more restrictions for cash-out refinancing and loans for investment properties. Hand said industry officials are pushing to have the larger loans treated just like any other conforming mortgages.  Conforming home loans are defined as that Fannie Mae and Freddie Mac agree to buy for their portfolio.  Jumbo mortgage loans will continue to feature higher interest rates because the risk for default remains greater.   

FHA will allow a 30-day appeals period for those wishing to contest its median price estimates. Appeals are to be based upon data suggesting a potentially higher price median for a given area. Details concerning the appeals process will be released today in an FHA mortgagee letter. To the extent that appeals are deemed valid and HUD’s median price estimates change in response to the one-time appeals process, the FHA loan limits will be changed to reflect the updated data.    

As in previous years, the 2009 maximum conforming limits are higher in Alaska, Hawaii, Guam, and the U.S. Virgin Islands than in the contiguous U.S. In those areas, as delineated in the attached list, loan limits vary from $625,500 to $721,050 for one-unit properties.  Link to 2009 High-Cost Area Loan Limits (PDF)