2009 Conforming Loan Limits Jump

The American Recovery and Reinvestment Act (ARRA), which was signed into law last Tuesday, increased the maximum conforming loan limit for mortgages originated in 2009, said the Federal Housing Finance Agency Monday. The increase affects 250 counties across the United States. For these areas (see list here), Fannie Mae (FNM) and Freddie Mac (FRE) loan limits will return to their late-2008 levels, which were up to $729,750 for one-unit properties in the United States.  Loan limits in other areas will not be changed by the legislation. Conforming loan limits for 2009 were originally announced in late 2008 and had been calculated under terms set forth in the Housing and Economic Recovery Act of 2008 (HERA), passed in July. So as of Jan. 1, Fannie Mae and Freddie Mac were no longer able to purchase or guarantee mortgage loans above the $625,500 conforming limit. Until now, of course. The new ARRA legislation stipulates that, for loans originated in 2009, the loan limit is to be the higher of the 2008 limits and those originally calculated for 2009 under HERA.   Where the 2008 and 2009 limits differ, the 2008 limits tend to be higher and thus, in most cases, loan limits are reverting back to last year’s levels. For the relatively few counties where 2009 limits actually increased — 43 counties in Virginia, North Carolina, and California — the new limits will remain at the higher level, according to the FHFA. Under the terms of the new legislation, the Director of FHFA is given the authority to increase loan limits levels for “sub-areas.” Given the implementation difficulties associated with establishing multiple limits for any given county, FHFA’s Director currently has no  plans to use this discretion, according to the FHFA. The legislation’s loan limits apply to all loans originated in 2009. For loans purchased in 2009 that were originated from July 1, 2007 through December 31, 2008, the same limits will apply, the FHFA said.  For loans purchased in 2009, but originated before July 1, 2007, the limits previously announced by FHFA on November 7, 2009 and updated in December will apply.  For example, a $700,000 mortgage originated in 2006 would not be eligible for purchase this year, even if the applicable local limit under ARRA is $729,750. Write to Kelly Curran at Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.

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