- Fannie Mae and Freddie Mac help make mortgages available by purchasing them from lenders.
- Each year, their federal regulator sets a limit on the size of loans they can buy.
A person with a $1 million home mortgage is now considered the average Joe.
The mammoth-sized loans are getting to be more common with home prices still on the rise, annually, despite higher interest rates and a rapid cooling of the housing market.
Indeed, the cost of a house is now so high that Fannie Mae and Freddie Mac — the two government-sponsored enterprises created to help everyday people finance homes — in 2023 will be allowed to snap up mortgages up to $1.09 million, a record for the companies. The limit that applies to the highest-cost areas of the country is up from $970,800 last year, for a 12.2% increase, according to the Federal Housing Finance Agency, the regulator which announced the change on Tuesday.
Fannie and Freddie are the largest buyers of US home mortgages and are credited with providing constant liquidity in the housing market through their purchases, even during downturns. They bundle the loans into mortgage-backed securities and guarantee payments to investors in exchange for fees.
Their scope in residential markets is capped by the so-called conforming loan limit, which per a 2008 law is set in accordance to changes in home prices. Outside the priciest areas of the country — which include areas around New York, Washington, DC, and coastal California — the conforming loan limit will also rise by 12.2%, to $726,200.
Considering how much home prices have increased from last autumn to now, the uptick makes sense. The FHFA's index of home values on Tuesday showed US prices increased by 12.21%, on average, in the four quarters through September.
For reference as to just how much a typical home costs these days, the median home price on the online marketplace Realtor.com was $425,000 in October, lower than the peak of $450,000 in June but significantly higher than the $380,000 of the same month last year.
The higher conforming loan limits are designed to help more Americans buy homes but overall measures of affordability have worsened sharply as 30-year mortgage rates have doubled in the past year. Housing experts have predicted that home sales will continue to decline, curbing home price increases at best, or causing steep declines in some places.
If their predictions are right, then Fannie and Freddie's cap may be seeing its peak.