Just about in time for Black Friday each year, the governing body for the GSE’s announce the new conforming loan limits for the subsequent year. This year was met with little excitement as the maximum conforming loan limit will remain at $417,000 for most of the U.S. in 2015. FHFA announced the limits, which define the size of loans eligible to be acquired by Fannie Mae or Freddie Mac, on Monday. The limits are established under the terms of the Housing and Economic Recovery Act of 2008 (HERA) and recalculated each year.
The limits were unchanged despite substantial increases in most indexes that measure home prices on national and local levels. FHFA explained that HERA requires that while the baseline loan limit be adjusted each year to reflect changes in the national average home price, after a period of declining prices any prior declines must be fully offset before a loan limit increase can occur.
During the financial crisis the FHFA home price index declined by close to 20 percent through 2011. Increases since then have not been sufficient to offset those loses. FHFA said that while its own index has been used for the calculation, the results would have been the same if several other commonly cited indexes had instead been employed.
The $417,500 baseline limit is not universal however. Where 115 percent of the median home value in a given area exceeds that limit higher loans are permitted although a local limit cannot be more than 50 percent above that baseline. The highest possible local area loan limit for a single family property is $625,500 – 150 percent of the baseline. Additional exceptions exist for Alaska, Hawaii, and the District of Columbia.
FHFA announced that local loan limits are being raised in 46 counties (full list) although in actuality only a few metropolitan statistical areas (SMSAs) are affected and most of the increases will be small. The largest increase will be in the seven counties in eastern Massachusetts and Southern New Hampshire that comprise the Boston-Cambridge-Newton-NH SMSA. These counties will see an increase of $47,150 to a new limit of $517,500. Seven counties comprising the -Baltimore-Columbia-Towson, Maryland SMSA also got a new limit of $517,500 although for that area this was an increase of only $23,000.
Fourteen counties making up the Nashville Tennessee metropolis will be boosted from the national baseline limit to $425,500 and the three counties in the Seattle-Tacoma-Bellevue area will go from $506,000 to $517,500. Four widely dispersed counties in California will get increases as well, Monterey (+$9,550) Napa (+$23,000), San Diego (+$16,100), and Ventura (+$5,750).
Ten counties in the Denver-Aurora-Lakewood SMSA will be boosted off of the baseline to $424,350, but an 11th Colorado county, Boulder, will increase by $39,550 to $456,550.
FHFA said that although other counties experienced home value increases in 2014, after other elements of the HERA formula were accounted for the local-area limits were left unchanged.