Roughly 1.38 million homes in 204 counties nationwide could be affected by mortgage loan limits that Fannie Mae, Freddie Mac, and the Federal Housing Administration (FHA) plan to reduce this fall, the National Association of Home Builders estimates.
Homes affected by the reduced lending limits would require financing with higher mortgage interest rates if they were put up for sale. NAHB's recently issued report aims to show how this move, based on criteria set forth by Congress in 2008, would affect the mortgage market.
NAHB noted that the 1.38 million homes that would no longer qualify for funding through government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac would bring to roughly 5 million the number of homes natoinwide that would fall outside the GSEs' loan limits. The decline in FHA funding will have even larger impacts, NAHB, as the declines will hit 20% of counties throughout the country and add 3.87 million homes to those outside the temporary loan limits. This will raise the number of homes ineligible for FHA-insured mortgages to 12.2 million.
"As home sales are inter-related (for example, starter homes are sold to first-time homebuyers by move-up buyers), this pressure on prices could spill over on other homes in the affected areas," NAHB said.
The size of mortgages that can currently be purchased and securitized by GSEs is generally $417,000. In some high-cost areas, however, this limit can be as high as $729,750. The new rules will not affect the $417,000 base limit, but will lower the limit in high-cost areas to $625,500. The lowest limit for FHA loans, meanwhile is $271,050, with the ceiling being $729,750. Just like GSEs, FHA ceilings are set to fall to $625,500 on Oct. 1.
Homes that fall outside of the conforming loan limits will also likely be subject to higher downpayments and tighter credit requirements, which can impact demand and prices for such homes.