The conforming loan limit, perhaps the most intently watched number in the mortgage business, will remain unchanged next year at $417,000.
The limit is the legislatively set ceiling on the size of loans that can be purchased or guaranteed by Fannie Mae and Freddie Mac, the two government-sponsored financial institutions which keep local lenders awash with cash for home loans.
Because the enterprises bring a certain amount of standardization to the market, and because investors throughout the world believe the GSEs' securities are backed by the full faith and credit of Uncle Sam, rates charged on loans at or below the limit are often 0.25-0.5 percent less expensive than so-called "jumbo" loans that are above the ceiling.
In addition, "subprime" borrowers who don't measure up to Fannie Mae and Freddie Mac's strict underwriting standards also pay higher rates, no matter how much they are borrowing.
Normally, the Fannie-Freddie limit is determined by the percentage change in the average price of both new and existing housing from one October to the next as measured by the Federal Housing Finance Board.
The board said yesterday that the average in October 2006 fell $501, from $306,759 a year earlier to $306,258. The slight 0.16 percent decline was the index's first October-to-October dip since 1992-1993.
The decline would have resulted in a $667 drop in the limit to $416,333. But Director James Lockhart of the Office of Federal Housing Enterprise Oversight said he would not order a lower limit next year "so as not to disrupt the end-of-year pipeline."
OFHEO, the GSEs' safety and soundness regulator, took over responsibility for calculating the maximum in 2004 when it discovered the two companies adjusted the ceiling for that year somewhat higher than it should have been.
Lockhart also said this year's decline would be deferred until next November, when the conforming loan limit will be reset for 2008.
Because limits on government-insured loans are based on the conforming loan limit, it is likely the ceiling on FHA mortgages in high-cost areas will remain at $362,790 next year and $200,160 in most other markets.
The Department of Housing and Urban Development will make that determination prior to Jan. 1. It also is likely that HUD will adjust the FHA ceiling in some places, either up or down, depending on the most current average home prices.
Prior to this year's small decline in the FHFB index, the average increase in the October-to-October price of houses over the previous five years was 8.8 percent. Last year's limit was 15.9 percent above the $359,650 ceiling in 2005.
Although OFHEO chose not to lower the ceiling, lenders in high cost states continued to rail against the formula by which it is set, saying that it penalizes people living within their borders.
"Californians should have the same right to lower rates as everybody else," said Michael Faust, a vice president of the California Association of Mortgage Brokers and chairman of the group's government affairs committee.
CAMB and others are championing federal legislation that would place California and other high cost markets on the short-list of places like Alaska and Hawaii where the ceiling is 150 percent higher than everywhere else.
The savings from such a change, said Faust, who is with American Pacific Mortgage in Roseville, could be as much as $750 billion nationwide. That kind of money, he said, "could effect people's lives in many ways."
The only other period in which the loan limit remained unchanged was a three-year stretch between 1993 and 1995, when it was $203,150. In 1990, the limit was lowered for the first and only time by $150, from $187,600 to $187,450.
Conforming limits for loans on other properties also will remain the same for 2007:
- $533,850 for mortgages on two-family properties;
- $645,300 for mortgages on three-family properties; and
- $801,950 for mortgages on four-family properties.
