Prompted by a massive rise in home prices over the last year, Fannie Mae and Freddie Mac are reportedly planning to revise the maximum size of the mortgages they’re prepared to back next year.
According to the Wall Street Journal, the government sponsored entities are willing to increase their loan limits to almost $1 million in some areas.
If Fannie Mae and Freddie Mac do raise their limits to that level it would represent a sharp jump. At present, they only back single-family mortgages to a maximum of $548,250 in most parts of the U.S., though that rises to $822,375 in some of the more expensive markets such as California and New York.
The Journal reported that the baseline level is expected to rise to around $650,000 in most areas, and just under $1 million in high-cost areas.
The annual caps are expected to be announced by the Federal Housing Administration, which oversees Fannie Mae and Freddie Mac, on November 30. The new limits would then come into effect in January 2022.
The GSEs update their loan limits each year using a formula that takes into account median home price increases.
The increased limits are widely expected because house prices have soared over the past year. Driven by coronavirus pandemic-fueled demand, the median price of a single-family existing home surged 16% to $363,700 in the third quarter compared to a year earlier, according to data from the National Association of Realtors.
Fannie Mae and Freddie Mac are said to guarantee about half of the $11 trillion U.S. mortgage market. They don’t issue loans directly, but instead buy them from lenders and package them as securities that are sold on to investors. Mortgages that are within their annual loan limits are known as conforming loans.
The GSE’s share of the mortgage market has risen significantly since the beginning of the pandemic. Recent data from the Urban Institute shows they backed almost 60% of all new mortgages in 2020, up from 42% in 2019.
Some analysts have voiced concerns over the GSEs increasing their threshold prices, saying their role in the mortgage market is becoming too big. But others are in favor of the increases as they argue that Fannie and Freddie are able to help more borrowers afford homes in expensive markets.