The peak value of U.S. mortgages that qualify for federal backing has been raised to nearly $1 million, reflecting a surge in home prices during the coronavirus pandemic.
The Federal Housing Finance Agency on Tuesday announced the largest single-family property loan in high cost area including New York and Los Angeles that can be purchased by government-funded home loan agencies Fannie Mae and Freddie Mac will increase to $970,800 by 2022.
This is an 18% increase in the so-called matching loan limit set in 2021. In most of the US, the limit will increase to $647,200 from $548,250.
The rise will raise questions about whether Fannie and Freddie, who were taken over by the federal government during the subprime mortgage crisis, are helping to fuel a wild rise in home prices.
FHFA data also released on Tuesday showed house prices up 18.5% year-on-year in the third quarter of 2021, tallest historical levels in its quarterly series.
Sandra Thompson, acting director of the FHFA, said in a statement: “Compared to previous years, loan lines aligned with 2022 represent a significant increase as a result of historic home price increases over the last year.” Sandra Thompson, acting director of the FHFA, said.
The Housing and Economic Recovery Act of 2008 provides that baseline-aligned lending limits will be adjusted annually to reflect changes in national home prices.
According to Walt Schmidt, head of mortgage strategy at FHN Financial, the policy is “a bit self-fulfilling in nature,” as higher house prices push the cap higher, which further supports rising prices. high.
“This loan sizing really does extend credit to borrowers in the new, expanded loan size pool, who may be only marginally disadvantaged compared to FICO. [credit] point of view,” said Schmidt.
Fannie and Freddie have secured a large portion of the mortgages and have been under government control since 2008, when they were bailed out during the housing market crash.
The Trump administration proposed responding to Fannie and Freddie but the attempt ultimately failed.
The pandemic has boosted demand for larger suburban homes. US home prices increase slightly Slower in September, according to S&P CoreLogic Case-Shiller index data released on Tuesday.
William Doerner, the FHFA’s supervisory economist in its research and statistics division, said that, while prices have risen “particularly fast”, market dynamics “peaked out in July as gains adjusted monthly”.