UPDATE: For 2011 Conforming Loan limits for Northern Virginia, click here.
This is a post of special interest to many of us in the Washington D.C. metropolitan area. I was in a NVAR Finance Forum meeting discussing the Economic Summit and Sweth started to talk about the upcoming expiration of the current $ 729,750 conforming loan limit on December 1st and how it may impact the health of the Northern Virginia real estate market.
So I decided to invite him to tell the story… enjoy!
by: Sweth Chandramouli, an Alexandria, VA mortgage broker, blogger and yet another former retired high-tech guy now with Ethical Homes.com
Conforming loan limits in the metro DC area may be changing significantly in coming months, potentially dropping by nearly half by the end of the year.
The Housing and Economic Recovery Act of 2008 (HERA) increased the conforming mortgage loan limit to $417k, and also created “high-balance” conforming loans in high cost areas, which would have rates that were slightly worse than “regular” conforming loans but still better than traditional “jumbo” mortgages. The high-balance limits were based on median sales prices in those high-cost areas, and for the metro DC area, the limit for 2009 was set at $625,500. In February 2009, Congress passed the American Recovery and Reinvestment Act of 2009 (ARRA, aka the economic stimulus bill of 2009), which temporarily increased the limit for high-cost areas such as DC to $729,750.
The ARRA limits expire on 12/1/09, however, at which point the limit for the DC area will drop back down to the HERA limit of $625,500. (12/1/09 is also the deadline for first-time home buyers to take advantage of the $8000 tax credit, so first-time buyers who need loans in the $626k-$729k range should be especially motivated to close their purchases by December 1st.)
That change will affect many people in the DC area, but far more widespread will be the change that will probably occur on January 1, 2010. HERA resets the conforming and high-balance limits each January according to a specific formula; that formula does not allow the basic conforming limit to decrease from year to year, but it does allow the high-balance limit to decrease or vanish entirely, and based on current calculations, that’s exactly what will happen in most parts of the U.S., including the metro DC area–on January 1st, barring any new stimulus bills passed by Congress between now and then, any loan in the DC area above $417k will probably be treated as a “jumbo” loan with significantly higher rates and tighter qualifying requirements.
We’re going to be monitoring this situation closely, and have contacts at Fannie Mae, Freddie Mac, and in Congress who are trying to get more information on whether there are in fact any plans to enact another temporary stimulus bill that would increase the limit for 2010, but for now, borrowers should assume that the high-balance loan limit in the DC area will drop to $625,500 on 12/1/09, and go away entirely on 1/1/10.
For the detail-oriented people out there:
- HERA sets the high-balance limit at the lesser of 115% of the median MSA sales price (as published by FHFA each October) or $625,500, which means that all MSAs w/ median sales prices above $544k are capped at $625,500, and all MSAs w/ median sales prices below $363k are not considered high-cost and are capped at the regular conforming limit (currently $417k). In October 2008, FHFA’s published median MSA sales price for the DC MSA was more than $544k, so the limit for 2009 was $625,500.
- The exact FHFA numbers for 2010 won’t be published until October 2009. NAR does publish very similar statistics, however, and based on NAR’s numbers for the last quarter, as well as FHFA’s own HPI numbers, most MSAs (including DC) will have median sales prices below $363k, which is why we are assuming that high-balance loans will effectively be eliminated as of 1/1/2010.
- The exact history of high-balance conforming limits in the last few years is actually more even more complicated. In Feb 2008, Congress passed the Economic Stimulus Act of 2008, which raised the conforming limit to $729,750 in the highest-cost areas, but which expired on 1/1/2009. Also, Fannie Mae, Freddie Mac, and the lenders that work with them took some time to implement the changes in ARRA 2009, during which time the practical limit was still the HERA limit of $625,500. So the high-balance limits in the highest-cost areas such as DC were $729,750 from 2/2008-1/2009, $625,500 from 1/2009-2/2009, then legally $729,750 but still practically $625,500 from 2/2009-4/2009, and then $729,750 from 4/2009 to the present. Expect a similar series of confusing changes in late 2009 and early 2010, especially if new legislation is passed to change the limits yet again.