The Veridian Blog

The American Recovery and Reinvestment Act of 2009 increased the maximum allowable amount of conventional loans that are salable to Fannie Mae to $729,750 in the Bay Area.  This increased the limit from $625,500 placed into effect in the first part of 2009 via the Housing Recovery Act of 2008 and from $417,000 which is the maximum “traditional” conforming limit. 

On October 30^th, the House and Senate moved quickly to pass an extension of the $729,750 GSE (Government Sponsored Entities – Fannie Mae and Freddie Mac) loan limit, hoping to avoid any potential disruption in the mortgage market.  Both chambers cleared the loan limit extension as part of a continuing funding resolution.  President Obama is expected to sign the continuing resolution shortly.  The maximum $729,750 loan limit for Fannie Mae, Freddie Mac and Federal Housing Administration loans in high cost areas were set to expire on December 31, 2009.  Without the new law, the high-cost loan limit would have fallen back to $625,500.  The continuing resolution extends the higher loan limits through December 31, 2010.  The new law also extends the nationwide $625,500 loan limit for FHA-insured reverse mortgages through December 2010.

"Given the lack of a private secondary mortgage market, FHA, Fannie Mae and Freddie Mac are pretty much the only game in town," said Robert Story, chairman of the Mortgage Bankers Association.  "Extending the current loan limits, along with other initiatives will help restore stability to the housing and mortgage markets."  VA loans were not included in the extension.  The Department of Veterans Affairs already has the authority to guarantee single-family loans with a maximum loan balance of $729,750 through December 31, 2011.

The new legislation, albeit late in the year, does not come as a total surprise.  Given the weakened state of the housing market and overall economic climate, we feel that the expiration of these limits would have certainly placed unwelcome drag on economic recovery.  It would have been an opportunity taken away from many homeowners trying to take advantage of historically low mortgage rates.