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Alec Bruice: FHFA Raises Conforming Loan Limits: Ventura’s Rise, Santa Barbara’s Stay Same

The Federal Housing Finance Agency (FHFA) announced that the maximum conforming loan limits for mortgages acquired by Fannie Mae and Freddie Mac in 2017 will increase. In most of the country, the 2017 maximum loan limit for one-unit properties will be $424,100, an increase from $417,000.

This will be the first increase in the baseline loan limit since 2006. In higher-cost areas, higher loan limits will be in effect.

The Housing and Economic Recovery Act of 2008 (HERA) established the baseline loan limit of $417,000 and requires this limit to be adjusted each year to reflect the changes in the national average home price.

However, after a period of declining home prices, HERA also made clear that the baseline loan limit could not rise again until the average U.S. home price returned to its pre-decline level.

Until this year, the average U.S. home price remained below the level achieved in the third quarter of 2007 and thus the baseline loan limit had not been increased.

Last month, FHFA published its third quarter 2016 House Price Index (HPI), which makes clear that average home prices are now above their level in the third quarter of 2007.

The expanded-data HPI value for the third quarter of 2016 was roughly 1.7 percent above the value for the third quarter of 2007, and thus the baseline loan limit will increase by that percentage.

The CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) issued the following statement in response to the FHFA’s announcement to increase the 2017 conforming loan limits to $424,100 on one-unit properties and a cap of $636,150 in high-cost areas. The previous loan limits were $417,000 and $625,500, respectively.

“C.A.R. applauds FHFA Director Mel Watt for raising the existing Fannie Mae and Freddie Mac conforming loan limits, which will provide stability and certainty to the housing market and give tens of thousands of California homebuyers a chance at homeownership,” said C.A.R. President Geoff McIntosh.

“The FHFA recognizes that home prices have recovered, not just in California but also across the nation. Many higher-priced areas of the state will benefit greatly from the higher limit.”

C.A.R. and the NATIONAL ASSOCIATION OF REALTORS® (NAR) both have long advocated for making higher conforming loan limits permanent. As a result of C.A.R.’s and NAR’s efforts, cities with high median home prices have benefited from a loan limit above the national conforming loan limit.

The conforming loan limit determines the maximum size of a mortgage that government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac can buy or “guarantee.”

Non-conforming or “jumbo loans” typically have tighter underwriting standards and carry higher mortgage interest rates than conforming loans, increasing monthly payments and hampering the ability of families in California to purchase homes by making them less affordable.

In areas where 115 percent of the local median home value exceeds the baseline loan limit, the maximum area loan limit will be higher.  HERA sets the maximum loan limit as a function of the area median home value, while setting a "ceiling" on that limit of 150 percent of the baseline loan limit.

This year, median home values generally rose in high-cost areas. Because the baseline loan limit will be higher in 2017, the new ceiling limit will also be higher.  The new ceiling loan limit, which applies in areas with the most expensive homes, will be $636,150 (150 percent of $424,100) for one-unit properties in the contiguous U.S.   

As a result of generally rising home values, the increase in baseline loan limit, and the rise in the ceiling loan limit, the maximum loan limit rose in all but 87 counties (or county equivalents) in the country.

For Ventura County, the loan limit will increase from $603,750 in 2016 to $636,150 in 2017. Santa Barbara County’s limit will remain the same at $625,500.

Taken from the Federal Housing Finance Agency and the California Association of Realtors®

Alec Bruice is a licensed real estate broker with Santa Barbara Brokers and the 2016 president of the Santa Barbara Association of Realtors. Contact him at [email protected] or 805.637.5774. The opinions expressed are his own.

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