Fannie Mae (FNMA) and Freddie Mac (FMCC) Can Bag Bigger Mortgages but That Doesn’t Change Anything

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The Federal Housing Finance Agency (FHFA) recently announced increase in loan limits of Federal National Mortgage Assctn Fnni Me (OTCMKTS:FNMA) and Federal Home Loan Mortgage Corp (OTCMKTS:FMCC). The loan limit for mortgages is revised upwards from $417,000 to $424,100. The limit also got changed for areas with more expensive homes from $625,500 to $636,150.

Changes to help first time buyers

However, the threshold limit is unlikely to make any big changes though brokers and realtors believe that the changes, effected probably for the first time in a decade, would help first-time buyers to enter the market. The perception is that the criteria are not rigid when the mortgage is backed by government for credit and the down payment.

In the past ten years, Fannie Mae (FNMA) and Freddie Mac (FMCC) bought loans with balances of a maximum of $417,000. However, this excluded high-cost areas where the limit was $625,500 until the most recent announcement.

Both the industry and homebuyers attach much importance to the threshold limit citing increased interest rates sometimes than government-backed mortgages. However, the situation has changed in the recent past. For instance, Wells Fargo & Co. (NYSE:WFC) quoted 4.25 percent for a 30-year fixed mortgage and four percent for a jumbo loan.

Another key factor is the tough requirements from lenders for jumbo mortgages like superior credit scores. Similarly, down payment is ranged between 15 and 20 percent.

Steady progress by home market

In 2011, the mortgage market crashed to $154,600. Since then, it has been a steady progress with home prices hitting a high of $247,600 in June reflecting 7.9 percent from over June 2006 prices. Aside from that, home-price index witnessed 6.1 percent YOY growth in the third quarter.

According to a Fairway Mortgage loan officer, Phil Ganz, pointed out that several first-time buyers were prevented from entering the housing market citing the cost to get government-backing for the mortgages. He believes that the first timer would get a change to buy home when the limits are increased.

Though there are number of potential buyers, they could not afford to provider more than three percent as down payment. On the other hand, Guy Cecala, Insider Mortgage Finance publisher, thinks that this is not a big increase to have any major impact.

Viraj Shah

Viraj Shah has completed M.Com (Finance) and is currently pursuing his CFP. He tracks US markets along with other global markets like India very closely. He is very passionate about stocks, real estate, and technology. He also believes that money can always be made in the market.

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