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Mortgage Market Notes

Mortgage Market Note 07-2: Historical Trends in the Conforming Loan Limit

Published: 10/16/2007
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​The Emergency Home Finance Act of 1970 chartered Freddie Mac to provide a secondary mortgage market for thrifts and other originators of conventional mortgages. The Act also allowed Fannie Mae to purchase conventional loans and established a conforming loan limit for both Enterprises of $33,000. The Act set the conforming loan limits 50 percent higher for three statutorily-designated high-cost areas: Alaska, Hawaii, and Guam (the U.S. Virgin Islands were added later).

Fannie Mae and Freddie Mac are prohibited by charter from purchasing single-family mortgages with unpaid principal balances above the conforming loan limit. Congress raised the limit to $60,000 for 1977 and $67,500 for 1979. The Housing and Community Development Act of 1980 increased the ceiling to $93,750 and indexed future annual increases to changes in average house prices (12 U.S.C. 1717(b)(2) for Fannie Mae and 12 U.S.C. 1454(a)(2) for Freddie Mac). The limits are adjusted each year to reflect the change in the national average purchase price for all conventionally financed single-family homes, as measured by the Federal Housing Finance Board’s (FHFB’s) Monthly Interest Rate Survey (MIRS). Statutory language relating to the limit permits “adjustments” to the ceiling each January based on the “percentage increase” over the twelve months ending in October of the prior year, as measured by the MIRS.

The 1980 Act also broadened the conforming loan limit concept to apply to mortgages that finance single-family properties with two units ($120,000), three units ($145,000), and four units ($180,000). Limits for mortgages that finance 2-, 3-, and 4-unit homes are indexed in the same manner as loans that finance 1-unit properties. For 2007, the limits are $417,000 for 1-unit, $533,850 for 2-unit, $645,300 for 3-unit, and $801,950 for 4-unit single-family homes. For 2007, the limits for high-cost areas are $625,500 for 1-unit, $800,775 for 2-unit, $967,950 for 3-unit, and $1,202,925 for 4-unit single-family homes.

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