Only a "small fraction" of the nation's 3,000-plus counties will be impacted when the formula that determines the conforming loan limit changes in October, according to an analysis by the Federal Housing Finance Agency (FHFA).
FHFA said only 250 county or county-equivalent areas will be affected by the change. The rest would see no change at all, the agency said in its new Mortgage Market Note report.
The magnitude of the decline will range from justty $500 for single-family homes in Weld County, Col., to $246,750 for one-unit properties in Monterey County, Calif.
The jurisdictions that will see the change are mostly in markets where the cost of housing is already high. There would be no change in the loan limit elsewhere because median home values in those markets are sufficiently low that the baseline loan limit – $417,000 – would apply.
Unless there is Congressional action to extend the current formula for setting the loan limits as established under the Economic Stimulus Act of 2008, the more modest calculation as dictated by the Housing and Economic Recovery Act of 2008 will apply as of Oct. 1.
Under HERA, the ceiling on loans that can be purchased or securitized by Fannie Mae and Freddie Mac is set at 115% of the median housing price for a particular county, up to 150% of the baseline national limit. Currently, the 150% limit is $625,500.
A decline in the loan limit would result under one or more of these three scenarios: A change in the maximum loan limit; a change in the multiplier to 115% under HERA from 125% under ESA; a change in the median price.
FHFA notes the impact on consumers as well as the two government sponsored enterprises is likely to be minimal when the change takes place this fall.
Consumers whose loans would fall outside the GSEs' purview would probably have to pay a higher interest rate because their mortgages would be considered "jumbo" loans as opposed to conforming. While FHFA says it is difficult to predict exactly how much more borrowers would be paying, it points out that given recent spreads between jumbo and conforming loans, their rates are likely to be 50 to 75 basis points higher.
As far as Fannie Mae and Freddie Mac are concerned, high-dollar loans comprise "only a small portion" of their business, their overseer says. Last year, for example, the two enterprises together acquired roughly 50,000 mortgages in amounts between $625,000, the current HERA ceiling, and $729,750, the limit under ESA.
According to FHFA, the total value of these loans was just over $30 billion, or less than 5% of the 2010 originations acquired by the two companies.
Among the more prominent jurisdictions that would be impacted by the change in loan limit formulas are Monterey, Calif., which would see its ceiling drop $246,750, from $729,750 to $483,000, and Monroe, Fla.., which would see its ceiling fall $200,750, from $729,750 to $529,000.
Other big declines could be expected in Maui ($163,250), San Diego ($151,250), Sonoma ($141,550), Napa ($137,500), Fairfield, Conn. ($133,750), Salt Lake City ($129,450), San Luis Obispo ($1126,300), and Los Angeles, San Francisco, the New York City metro area, and Washington D.C. and its surrounding counties ($104,250).