Last Tuesday the Office of Federal Housing Enterprise Oversight (OFHEO) announced that the 2005 single-family GSE conforming loan limit would rise roughly $26,000 to $359,650 from $333,700 - a 7.8% increase. By contrast, last year's rise was only about $10,000, resulting in significantly less homes being recategorized as conforming compared to previous years. This is also the first time that the OFHEO set the limit.
The conforming limits are indexed to the October-to-October percentage rise in the Federal Housing Finance Board purchase loan index. In 2003, the FHFB revised its computation method causing an artificially high home price index as well as a higher conforming limit. Last February, the OFHEO said that 2004 limit adopted by Fannie Mae and Freddie Mac did not incorporate the necessary adjustment factor resulting from the board's methodological changes. Because of this, the 2004 conforming limit was set at $333,700, $2,300 higher than it should have been. Due to the adjustment, the FHFB percent change was adopted for the 2005 calculation, not to the current limit but to a starting point of $331,400.