The increase in the 2001 single-family loan limit for Fannie Mae and Freddie Mac which was announced last week may only marginally increase mortgage-backed securities issuance, but will surely be a boon to lenders who might have been losing business to the jumbo fixed-rate market, sources say.
The Federal Housing Finance Board announced the results of its monthly interest-rate survey last week, which includes the average one-house sale price for October, the statutory index for calculating the conforming loan limits. The loan limit will be $275,000, up from this year's $252,700.
While this 8.83% increase will probably only slightly affect MBS, there is a good chance that it could cut into jumbo mortgage issuance, pushing loans in the jumbo market up to the $325,000 level and beyond, analysts say.
Meanwhile, agency lenders were cheering at the news of the loan limit increase, since it will help them stay competitive when their clients find better pricing in the jumbo fixed-rate market.
"On the production side of the business, we're ecstatic," said Gary Bierfriend, chief compliance officer and senior vice president at the MIT Lending division of MortgageIT. "This is great for lending because conforming loan amounts are always cheaper for consumers...and there is greater liquidity in the secondary markets. Whereas whenever you want a jumbo [fixed-rate mortgage] you have to find someone that's willing to securitize a portfolio, because you don't have a readily available GSE to buy those loans from you."
"The conforming loan limit increase will increase MBS issuance by only a few percentage points," added a Street analyst. "But because the agency market is bigger it curbs the jumbo market a little bit. Most borrowers save a quarter to three-eighths by taking a conforming loan rather than a jumbo loan. But if the limit is $275,000, people are not going to take out $285,000 or $290,000 loans. They will pay the $15,000 more and push jumbo-market loans up to $300,000 or even $325,000 and beyond."
The October 2000 one-house price index is $200,800, up from last year's $184,500. This year's loan limits involve a straight calculation based on the statutory formula, which looks at the October to October change in the home price index.
According to MortgageIT, the other 2001 conforming loan limits are: $351,950 for two-family, $425,400 for three-family and $528,700 for four-family. This year's increase will allow approximately 153,000 more families to take advantage of the savings provided by having a Fannie Mae mortgage, sources noted.
"The higher loan amount makes for a more liquid product, and it is accessible to anyone," Bierfriend added. "As a lender I will now be getting back those loans between $262,000 and $275,000, so I can compete more swiftly against the larger giants on those loans and keep my margins lower. You don't have as much accessibility to the jumbo product."
The 8.83% increase was one of the largest loan-limit increases in recent years. Since 1998, Fannie/Freddie have increased conforming loan limits on single-family homes by 21%, whereas the average increase for the past three years has been 6.56%.
The increase from 1998 to 1999 represented an increase of 5.66%, while the increase from 1999 to 2000 represented a change of 5.29% over the previous year.
Interestingly, the FHA loan limit is indexed at 48% of the conforming loan limit and will be $132,000 for 2001, up from this year's $121,296, according to MortgageIT.
The maximum FHA one-family loan limit for "high cost" areas, indexed at 87% of the conforming loan limit, will increase to $239,250 in 2001, up from this year's limit of $219,849.
"However, the FHA is more aggressive with what they define as high cost' areas," Bierfriend said. HUD uses its own internal data to determine the new mortgage limits for each high cost area until they are published in a Mortgagee Letter.
HUD expects to publish a Mortgagee Letter on around January 1, 2001 with a complete listing of all areas with high-cost limits and these new limits will go into effect at that time. -
