Tomorrow, November 28th, the Federal Housing Finance Board (FHFB) will publish it’s Monthly Interest Rate Survey, which documents the change in mean home price. The Office of Federal Housing Enterprise Oversight, (OFHEO), will utilize the information gathered by the FHFB from October 2005 until October 2006 to determine the 2007 conforming loan limit.
Any mortgage greater than the conforming loan limit is considered a ‘jumbo mortgage.’ Fannie Mae and Freddie Mac, the largest buyer of loans in the secondary mortgage market will not purchase jumbo mortgages, making them more difficult to sell to investors. Because jumbo mortgages are more difficult to sell, lenders charge consumers between 1/4 to 1/2 of a percent more than conforming loans.
The 2006 loan limit is $417,000. According to the FHFB’s September report the median price of homes fell by 3.1 percent. If the October figures show the same downward trend the loan limit will not change, and will remain at $417,000 for 2007. If home prices continue to decline next year then the 2008 loan limits will drop in 2008 by this year’s percentage decrease. If however, prices increase the 2007 increase would be weighed against the percentage of decrease in 2006. Interestingly, the loan limit has not declined since 1990 when it fell by only $150.