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Bruce McCoy
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Washington, DC – Stephen A. Blumenthal, Acting Director of the Office of Federal Housing Enterprise Oversight (OFHEO), today announced the maximum 2006 conforming loan limit for single-family mortgages purchased by Fannie Mae and Freddie Mac. This limit, after the customary rounding down to the nearest $50, can be no higher than $417,000 for one-unit properties.
The charters of Fannie Mae and Freddie Mac permit an annual adjustment to the maximum size of mortgage loans the Enterprises may purchase. The maximum adjustment is based on the change in the national single-family house price as determined by the Federal Housing Finance Board (FHFB) from its Monthly Interest Rate Survey (MIRS).
Effective Jan. 1, 2006, the Enterprises’ conforming loan limit for larger properties, subjected to the customary rounding, applies as follows: Two-unit mortgages are limited to $533,850; three-unit mortgages: $645,300; and four-unit mortgages: $801,950. The limit in statutorily designated high-cost areas (Alaska, Guam, Hawaii, and the U.S. Virgin Islands) will be 50 percent higher, for example, $625,500 for a one-unit, single-family mortgage. For second mortgages, the 2006 limit will be $208,500. In the designated high-cost areas this will be $312,750.
Conforming loans are mortgages that Freddie Mac and Fannie Mae, quasi-government corporations, actively purchase in the secondary market. These loans have been approved by certain underwriting guidelines. One of these guidelines is that the total amount of each loan doesn’t exceed their specified limit. Each December, Freddie and Fannie put home prices nationwide into the computer and it spits out what the new dollar limit will be for the next year. This new number is a combination of median price of a certain percentage of those homes and is adjusted for high-cost states with California being one of those states.
About this time of the year, some of the larger lenders start to anticipate what that new limit will be and may, depending on how confidant they are of their computers and numbers, begin to close loans at a higher limit. These lenders are often VERY conservative in this anticipation - if they overshoot the actual number that Freddie and Fannie decide on, it will cost them a great deal of money. The difference between a conforming interest rate and the interest rate for mortgages for loans higher than conforming limits tends to be around 3/8 of a percent. This difference in rate will mean hundreds of dollars in payments. You can see why homebuyers want their loan to be “conforming”.
Although it isn’t official yet, the new conforming limit that SOME lenders are funding for California is $400,000.
Fixed rates for conforming loans ($359,650) as of 11/18/05 (p.m.) are:
(Rates quoted are for 0 point loans)
30 year fixed: 6.125% (APR 6.21%) payments are $2,127.47/mo.
15 year fixed: 5.75% (APR 5.89%) payments are $2,986.57/mo.