Vail Daily column: Mortgage loan limits likely to be cut
While there is no official announcement yet, it is widely believed in the mortgage industry that the “temporary” high balance mortgage loan limits put in place in 2009 are finally be just that, temporary.
Each year, usually in October, Fannie Mae and Freddie Mac announce the loan limits for conforming loans for the upcoming year. A conforming loan limit is the maximum amount of money that the agencies will lend on a single mortgage loan.
From about 2004 or so the limit was $417,000 for a single family home or condo. There were, and will remain, higher loan limits for two to four family homes, and there have always been higher limits in certain areas, such as Hawaii.
When the private capital side of the mortgage industry collapsed in 2008 there were few if any options for borrowers who needed a bigger loan, particularly in more expensive markets like Eagle County. As such, the agencies announced increased loan limits for certain areas, with the max being $625,500, of which Eagle County qualified for. This tier of loan between $417,000 and $625,500 was known as “agency jumbo” limits.
This opened up the door for many purchases and refinances, because the supply of money elsewhere for such loans has been very tight and carried higher down payment requirements and tougher qualifying rules.
For those who needed a higher loan amount, there are a few lenders out there doing such loans, but the options were notably limited.
The government seems intent on easing out of the mortgage business, and this is one of the first steps to winding down such involvement.
In addition, the gradual tapering of the Federal Reserve banks’ support of the mortgage bond markets has pushed interest rates up substantially, which means investing in mortgages is more attractive to private investors, because there is a greater yield to justify the risk.
In the long run though, this may be a good thing for real estate investors because there will be a return of private capital and a sense of completion in the mortgage industry again. For too long, borrowers had to play by Fannie and Freddie rules or stay home. Fannie and Freddie had a one-size-fits-all mentality when it came to qualifying for a loan, and that just did not work for many otherwise well-qualified borrowers.
However, in the meantime for the next year or so, there may be some pain for borrowers who need a loan between $417,000 and $625,500 because there are limited options out there, and they come sometimes with more restrictive approval requirements than the existing agency programs to serve that market segment.
If you contemplate, then you will need a loan in the agency jumbo range so, I would strongly urge you to get busy and get your transaction completed soon, because you will very likely end up paying more and face more scrutiny come Jan. 1.
Chris Neuswanger is a mortgage loan originator with Macro Financial Group in Avon and can be reached at 970-748-0342. He welcomes mortgage related inquiries from local readers.