Fannie, Freddie Expected to Back Mortgages of Nearly $1 Million

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The rapid rise in home prices over the past year is prompting Fannie Mae and Freddie Mac to revisit the maximum size of home mortgages they will back for 2022, possibly increasing to nearly $1 million in some areas, The Wall Street Journal reports.

That would mark a sharp jump compared to this year: The government-backed enterprises currently back single-family mortgages to $548,250 in many parts of the country and to $822,375 in pricier areas, such as California and New York.

The Wall Street Journal is reporting that the baseline levels are expected to jump to about $650,000 in many areas and to just under $1 million in high-cost areas.

However, the actual caps won’t be released by the Federal Housing Administration, which oversees Fannie Mae and Freddie Mac, until Nov. 30. The new limits would take effect in January 2022.

Freddie Mac and Fannie Mae update their loan limits annually. They use a formula that factors in average home price increases nationally.

Home prices have surged since the pandemic. The median single-family existing-home sales price jumped by 16% to $363,700 in the third quarter compared to a year earlier, according to the National Association of REALTORS®.

Fannie and Freddie guarantee about half of the $11 trillion mortgage market. Neither entity issues loans directly. Instead, they purchase loans from lenders and package them into securities that are then sold to investors. Mortgages within Fannie Mae and Freddie Mac’s limits are referred to as conforming loans.

Fannie Mae and Freddie Mac’s share of the mortgage market has comprised nearly 60% of all new mortgages during the pandemic, up from 42% in 2019, according to the Urban Institute.

Some housing analysts are expressing concern over Fannie Mae and Freddie Mac increasing their threshold prices and saying the government’s role in the mortgage market is becoming too big. But others in favor of the increases say that it helps borrowers in more expensive markets to be able to afford rising prices.

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