Higher Conforming Loan Limits Due to Expire

Unless Congress intervenes, the maximum amount the Federal Housing Administration as well as loans backed by Fannie Mae and Freddie Mac can back will return to $417,000 in most areas and $625,500 in a high-cost areas.

Over the last two years, the government raised the limits in some high-cost areas to $729,750.

If Congress doesn’t extend higher limits, home prices would “drop precipitously” because it would be “impossible to finance homes in most parts of Los Angeles and certain other major cities,” said Rep. Brad Sherman, a California Democrat and member of the House Financial Services Committee,

But many economists support the end to higher limits. “We need to think how we are going to exit from a Fannie-and-Freddie world, and this is a very small step toward that exit,” said Richard K. Green, director of the University of Southern California’s Lusk Center for Real Estate. “Dialing it back to $625,500 is a perfectly reasonable thing to do.”

Source: The Wall Street Journal, Nick Timiraos (09/23/2010)

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