Conforming Loan Limit Reduction to Stand – For Now; HUD Clarifies FHA Annual MI Requirements for 15-Year Loans

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Lower Conforming Loan Limits to Stand For Now

Real estate industry groups have engaged in a flurry of last minute efforts to get Congress to postpone the conforming loan limit reduction set to take effect on October 1. Despite their efforts, it appears the new lower limits will stand – at least for now. Several efforts in Congress to extend the current limits have gone nowhere, but it’s an issue that could be revisited later this year according to the Orange County Register.

The conforming loan limit is the maximum loan amount that can be purchased by Fannie Mae and Freddie Mac. After the financial crisis of 2008, Congress increased the conforming loan limit to $729,750 for single-family homes (in the contiguous states, Puerto Rico, and DC) to support the housing market by allowing a greater number of mortgage borrowers in expensive markets to take advantage of low conforming rates. Now that the limit is set to be reduced to $625,500 on October 1, more mortgage borrowers will be forced to seek jumbo financing – which is typically more expensive and difficult to qualify for.

Naturally, realtors are concerned that this change will have a negative impact on the higher end of the housing market. It’s common for jumbo mortgage rates to run 1% or more higher than the rates on a comparable conforming loan product. If it’s tougher and more expensive to seek financing for higher-end properties, it makes sense that prices at the high end of the market may have to come down a bit to compensate. Whether or not that happens remains to be seen.

HUD Clarifies Annual MI Requirements for 15-Year FHA Loans

HUD clarified this week that the annual mortgage insurance premium required on FHA loans  (paid as part of the mortgage payment in 12 monthly installments) will not apply to 15-year fixed loans with loan-to-values of 78% or less.  The premium will still apply to 30-year loans regardless of loan-to-value.

HUD raised the annual MI premiums for FHA loans earlier this year to help compensate for loan losses due to the tough real estate market. Fortunately for new FHA borrowers, lower mortgage rates have somewhat offset the payment increase from the MI change. Unfortunately for existing FHA borrowers, the change has eliminated any payment benefit resulting from a refinance into today’s lower rates.

Mark Fitzpatrick

Mark Fitzpatrick is a real estate investor and veteran mortgage consultant with Lenox Financial Mortgage Corporation dba Weslend Financial based in Irvine, California. His unique combination of real estate investing and mortgage financing experience enables him to offer exceptional knowledge and service to his mortgage clients.
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Mark Fitzpatrick is a real estate investor and veteran mortgage consultant with Lenox Financial Mortgage Corporation dba Weslend Financial based in Irvine, California. His unique combination of real estate investing and mortgage financing experience enables him to offer exceptional knowledge and service to his mortgage clients.

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