Only one county in the country–Fairfield, Conn.–will have a higher conforming loan limit in 2012. The ceiling in the other 3,200-plus counties will remain unchanged.
Under the permanent formula established by the Housing and Economic Recovery Act of 2008, the maximum size loan that can be purchased or securitized by Fannie Mae and Freddie Mac next year will remain at existing levels–$417,000 in most places but as high as $652,500 in high-cost counties. Only in Fairfield will the maximum increase, from $575,000 to $601,450 starting Jan. 1.
Other counties have higher home prices under the HERA formula, which tabulates loan limit changes based on average price increases or decreases from one October to the next in the nation's 3,234 counties. But Fairfield was the one county that experienced an increase after other HERA requirements were taken into account.
Technically, the 2008 law requires that the baseline limit be adjusted each year to reflect changes in the national average home price, but prohibits declines in the limit. If average home prices decline, then the baseline limit is to remain the same. In setting HERA limits for the last three years, the Federal Housing Finance Agency found that the national average declined in each preceding year. As a result, the national ceiling was left unchanged.
This year, the monthly and quarterly house price index produced by FHFA showed further price declines. Consequently, the baseline and high-cost maximums will again be unchanged.
Unless the FHFA changes the formula–a step it says it is considering–it's not likely that the conforming loan limit will change any time soon. The agency, which oversees the two secondary mortgage market institutions and the 12 Federal Home loan banks, has made the 'policy decision” not to allow the maximum to decline. But HERA also does not allow for any increases in an area's ceiling until past declines have been made up.
In announcing the 2012 limits, the FHFA said it is evaluating a number of alternative formulas for setting the ceiling and plans to publish for public comment a Federal Register notice in the coming months that will proffer a new 'specific methodology” for measuring price changes in the future.
At the same time, the agency went out of its way to point out that no other reliable house price metric would produce different loan limits for 2012 than those it announced. Other indices "show price declines over the latest year and, importantly, indicate very large cumulative price declines since home prices peaked several years ago." Cumulative declines are key because the law allows the baseline loan limit to increase only when home prices have returned to levels that prevailed before the declines.
"Home price statistics measured using any reliable methodology are far below" the current levels, FHFA said.