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US lifts upper limit on government-backed home mortgages to almost $1m

The highest value of US mortgages eligible for federal government backing has been lifted to almost $1m, in a reflection of the surge in house prices during the coronavirus pandemic.

The Federal Housing Finance Agency on Tuesday said the biggest loan for a single-family property in high-cost areas including New York and Los Angeles that can be purchased by government-sponsored home loan agencies Fannie Mae and Freddie Mac will rise to $970,800 in 2022.

This is an 18 per cent increase in the so-called conforming loan limit set in 2021. In most of the US, the limit will rise to $647,200 from $548,250.

The increases will raise questions about whether Fannie and Freddie, which were taken over by the federal government during the subprime mortgage crisis, are helping to stoke a furious rise in home prices.

FHFA data also released on Tuesday showed house prices rose 18.5 per cent year on year in the third quarter of 2021, the highest historical level in its quarterly series.

“Compared to previous years, the 2022 conforming loan limits represent a significant increase due to the historic house price appreciation over the last year,” Sandra Thompson, FHFA acting director, said in a statement.

The 2008 Housing and Economic Recovery Act mandates that the baseline conforming loan limit will be adjusted each year to reflect changes in national home prices.

The policy has “a bit of a self-fulfilling nature to it”, given that higher home prices push the limit higher which further supports rising prices, according to Walt Schmidt, who leads mortgage strategy at FHN Financial.

“This loan size increase really expands credit for borrowers in the new, expanded loan size bucket who may be just a bit marginalised from a FICO [credit] score standpoint,” Schmidt said.

Fannie and Freddie guarantee a large share of mortgages and have been under government conservatorship since 2008, when they were bailed out during the housing market crash.

The Trump administration had proposed reprivatising Fannie and Freddie but the effort ultimately failed.

The pandemic has propelled demand for larger, suburban homes. US home prices grew at a slightly slower pace 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 “exceptionally fast”, market momentum “peaked in July as month-over-month gains have moderated”.


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