With credit crunchiness seemingly everywhere, it’s a relief that federal regulators won’t change the regulations to decrease the “conforming” home-loan limit of $417,000 for next year. The current limit stays the same even if the index that helps set the maximum mortgage a government-sponsored agency can purchase comes up with a loss for 2007. Bigger loans have become hard and/or pricey to get in recent months.
The Office of Federal Housing Enterprise Oversight, which ordered the floor on the conforming-loan limit, produced some interesting research last month when it all but made $417,000 mortgage limits a staple for another year. That research showed what a raw deal high-cost places like California have gotten from government loan buyers.
In 1980, the conforming loan limit for the nation was set by Congress at $93,750 for that year with a caveat that the limit was be indexed to an obscure home-price index. Housing inflation over the past 27 years brought this limit to $417,000 for loans everywhere in the U.S. but Hawaii, Alaska, Guam and the Virgin Islands. Those areas get a 50% boost in their conforming-loan limits purportedly because of their pricey real estate.
But a virtually national standard is a disservice to homeownership when regional home costs vary widely. Since 1980, California home prices have grown (based on the less-obscure OFHEO indexes) at a 37% faster pace than the conforming-loan limit through 2007?s second quarter. Only two states — Massachusetts and New York — have seen their home values grow faster. Borrowers in these states are far more likely to need jumbo loans vs. a typical home shopper in other states. And jumbo loans, if you can get them, come with steep premium rates these days.
All told, home prices in nine states from 1980-2007 grew at least 10% faster than the loan limit. As a comparison, Oklahoma home values have grown 55% slower than the loan-limit expansion.
OFHEO had another gem in its report: “Since 1986, cumulative growth in the limit has outpaced cumulative growth in median household income … That has been particularly true since 2000, with the limit rising 65 percent while median household income rose 14.8 percent.”
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