Loan Limits Raised

By Taff Weinstein at

Loan Limits Raised

Fannie Mae and Freddie Mac have announced their new (and higher) conforming loan limits for 2020 and the good news is that more homebuyers will be able to purchase a home via a conventional mortgage than being forced to obtain a Jumbo mortgage which often requires a larger down downpayment and has higher mortgage rates.

Fannie Mae and Freddie Mac will let mortgage borrowers nationwide take out home loans over $500,000 in 2020.

The Federal Housing Finance Agency announced that it will increase the limit on conforming loans, meaning mortgages that adhere to the standards imposed by Fannie Mae and Freddie Mac to a maximum of $510,400 nationwide. In high-cost areas, the maximum loan limit for mortgages acquired by Fannie Mae and Freddie Mac will be $765,600.

By law, conforming loan limits must be adjusted to reflect changes in home prices across the U.S. The FHFA noted that its data show home prices had increased on average 5.38% between the third quarters of 2018 and 2019. Therefore, the loan limits increased by that percentage. In high-cost areas, the law allows loan limits to be set 50% higher than the baseline level nationally. Special provisions also establish different loan limit calculations for Alaska, Hawaii, Guam and the U.S. Virgin Islands.

This is the fourth consecutive year that the conforming loan limit has increased. Between 2006 and 2016, the FHFA held loan limits at $417,000. When loan limits were increased for the first time in 2017, it sparked enthusiasm across the mortgage industry as lenders expected it could lead to more people seeking home loans, because the lower loan limit forced many people to get jumbo loans that don’t always offer competitive financing.

For consumers, the higher limits are an indication that while home prices are still heading higher which further supports home ownership as a valuable financial tool.

Source: Fannie Mae, Freddie Mac, National Association of Realtors.

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 3.500 MBS) lost -2 basis point (BPS) from last Friday's close which caused fixed mortgage rates to remain at or near the same levels as the prior week.

Overview: We had some very positive economic news with strong readings in the Labor sector, Services sector, and in Consumer Sentiment.  All would normally combine for higher mortgage rates but concern and uncertainty over the trade war with China and the Brexit vote kept mortgage rates steady.

Jobs, Jobs, Jobs: The Bureau of Labor and Statistics released their Employment Situation for November and it was a big-time beat. You can read the official release here.

Here is the Tale of the Tape:

Jobs:

November Non Farm Payrolls 266K  vs est of 180K
October NFP revised upward from 128K to 156K
September NFP revised upward from 180K to 193K
The rolling three month average is now a robust 205K

Wages:
Average Hourly Earnings rose by 7 cents to $28.29
Average Hourly Earnings increased by 3.1% on a YOY basis vs est of 3.0%.  Last month was revised upward from 3.0% to 3.2%
Employment:
The Headline Unemployment Rate dropped to 3.5% vs est of 3.6%
The U6 Unemployment Rate dropped from 7.00% down to 6.90%
The Participation Rate dropped from 63.3% to 63.2%

Consumer Sentiment: The Preliminary December release was much stronger than expected (99.2 vs est of 96.5)

Services: The November ISM Non Manufacturing (Services), which account for more than 2/3 of our economic engine, continued to show expansion with a reading of 53.9.  But that was a little below market expectations of 54.7

Central Bank Palooza: The Bank of Canada kept their key interest rate at 1.75%

Manufacturing: The November Markit Manufacturing Index was stronger than expected (52.6 vs est of 52.2) and remained in expansionary territory but the ISM Manufacturing Index came in below 50 which is contractionary (48.1 vs est of 49.2).

What to Watch Out For This Week:

 

 

The above are the major economic reports that will hit the market this week. They each have the ability to affect the pricing of Mortgage Backed Securities and therefore, interest rates for Government and Conventional mortgages. I will be watching these reports closely for you and let you know if there are any big surprises.

It is virtually impossible for you to keep track of what is going on with the economy and other events that can impact the housing and mortgage markets. Just leave it to me, I monitor the live trading of Mortgage Backed Securities which are the only thing government and conventional mortgage rates are based upon.

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