Fannie Mae and Freddie Mac have taken a big chunk of the Jumbo mortgage market away from private investors since 2008 when Congress raised the maximum GSE loan limit to $729,750, according to researchers at the Federal Housing Finance Agency.
Using 2009 Home Mortgage Disclosure Act figures, researchers concluded that the GSEs purchased 55% of what the government calls “high conforming Jumbo mortgages” (HCJMs) originated in 10 high-cost counties that were analyzed. (HCJMs have loan balances greater than $625,500 and up to $729,500.)
Moreover, the authors — FHFA economist Paul Manchester and program analyst Ian Keith —suspect the GSEs' 55% share of HCJMs is “understated” in the HMDA reports lenders file with regulators.
“For the 10 counties studied, HCJMs accounted for 3% to 8% of [all] mortgages originated in 2009 and 5%-13% of the total dollar volume of mortgages originated, with the highest shares in Fairfield County, Conn.,” the research paper said.
Manchester and Keith presented their paper at a recent meeting of the American Real Estate and Urban Economics Association.
Meanwhile, Congress and the Obama administration are poised to allow the maximum GSE loan limit to expire on Sept. 30 and drop back to $625,500. Soon, only private investors will be able to purchase mortgages with balances above $625,500.
The FHFA authors pointed out that lenders originated 4,646 HCJMs totaling $3.2 billion in Los Angeles County in 2009 along with 4,746 higher balance jumbo loans totaling $6.7 billion.
If the GSE maximum loan limit falls back to $625,500, Jumbo loan investors will have to expand their capacity by nearly 50% in dollar volume to “accommodate the HCJM market in Los Angeles County,” according to the research paper.