Notes:

• Conforming limits for Alaska, Hawai’i, Guam, and the U.S. Virgin Islands are 50% higher than the limits given above.
• Prior to 1981, there were no conforming second mortgages. From 1981-1983, conforming second mortgages had the same limits as conforming first mortgages. From 1984 to the present, conforming second mortgages were allowed with a limit equal to 50% of the conforming first mortgage limit for the same year.
• “High-balance” loans are loans for amounts larger than the normal conforming limit for the year in question, but no greater than the high-balance limit for that year and for that area, as described below; the amount given for the High Balance Loan Limit Cap in the table is the highest that those per-area high-balance limits can be, but individual areas may have lower high-balance limits (or possibly no high-balance loans at all) as described below. Also note that high-balance conforming loans usually have higher costs/rates than normal conforming loans; however, those rates and costs are still usually significantly lower than the “jumbo” rates available for loans over the conforming limit.
• Limits prior to 2008 were determined on an annual basis by Fannie Mae and Freddie Mac. Section 1124 of the Housing and Economic Recovery Act of 2008 (HERA) created a statutory formula by which limits would be determined moving forward, and also created a class of “high-cost” areas with higher limits also determined by statutory formula.
  • Specifically, the “basic” conforming limit would be equal to $417k in 2008, and then in each subsequent year it would be increased proportional to the increase in median home prices for the country for the preceding year (as defined by FHFA each year in October, based on sales in the previous 12 months); for example, if home prices go up 5% in a given year, then the conforming limit would be increased by 5% for the following year. If prices go down in a given year, then the conforming limit does not go down; instead, that decrease is “rolled over” to future years, and the limit is only adjusted in years when the net change since the last adjustment is positive. For example, if home prices go down in Year X by 5%, and then go up by 7% in Year X+1, then the limit for Year X+1 wouldn’t be changed (since prices dropped in Year X), and the limit for Year X+2 would be 2% (the net change since the last time limits were adjusted (before Year X)).
  • HERA also established a formula for “high-balance” limits in high-cost areas; specifically, in areas (defined by Census Bureau Metropolitan Statistical Areas or “MSAs”) whose median home sales price (again as defined by FHFA each year in October for the following year, based on sales in the previous 12 months) are higher than 87% of the conforming limit as determined above, the “high-balance” limit will be the lesser of 115% of the median price for that area, or $625,500. For example, if the conforming limit for a given year is $500k, and the median sales price for an MSA is $400k, then that MSA is not a high-cost area, since $400k is less than 87% of $500k. If in that same year another MSA has a median sales price of $480k, then the high-balance limit for that MSA will be $552k. If in that same year a third MSA has a median sales price of $600k, however, then the high-balance limit for that MSA will be $625,500, since 115% of $600k ($690k) is more than $625,500.
• Prior to the enactment of HERA in 2008, which set up the long-term formula for conforming loan limits moving forward, Congress passed the Economic Stimulus Bill of 2008 (ESB 2008), which set the high-balance limit for high-cost areas at $729,750. Thus, the $625,500 high-balance limit set forth in HERA was never in effect in 2008; HERA’s high-balance limits only became practically in effect when ESB 2008 expired on 1/1/2009.
• The American Recovery and Reinvestment Act of 2009 (ARRA) included a provision to increase the conforming high-balance limits for 2009 back to the $729,750 limit that had been in effect for most of 2008 under ESB 2008. ARRA 2009 was passed in February of 2009, but lenders were slow to implement the changes, so the limit for 2009 was practically still $625,500 until April 2009. ARRA 2009′s mortgage limit provisions expire on 12/1/09, at which point the high-balance limit is expected to revert to HERA 2008′s $625,500 limit for the last month of 2009 (unless further legislation is enacted prior to 12/1/09).

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1. Upcoming Changes To Conforming Loan Limits
2. FHA 2010 Limits Are NOT Changing
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The Housing and Economic Recovery Act of 2008 (HERA) increased the conforming mortgage loan limit to $417k, and also created “high-balance” conforming loans in high cost areas, which would have rates that were slightly worse than “regular” conforming loans but still better than traditional “jumbo” mortgages. The high-balance limits were based on median sales prices in those high-cost areas, and for the metro DC area, the limit for 2009 was set at $625,500. In February 2009, Congress passed the American Recovery and Reinvestment Act of 2009 (ARRA, aka the economic stimulus bill of 2009), which temporarily increased the limit for high-cost areas such as DC to $729,750.

The ARRA limits expire on 12/1/09, however, at which point the limit for the DC area will drop back down to the HERA limit of $625,500. (12/1/09 is also the deadline for first-time home buyers to take advantage of the $8000 tax credit, so first-time buyers who need loans in the $626k-$729k range should be especially motivated to close their purchases by December 1st.)

That change will affect many people in the DC area, but far more widespread will be the change that will probably occur on January 1, 2010. HERA resets the conforming and high-balance limits each January according to a specific formula; that formula does not allow the basic conforming limit to decrease from year to year, but it does allow the high-balance limit to decrease or vanish entirely, and based on current calculations, that’s exactly what will happen in most parts of the U.S., including the metro DC area–on January 1st, barring any new stimulus bills passed by Congress between now and then, any loan in the DC area above $417k will probably be treated as a “jumbo” loan with significantly higher rates and tighter qualifying requirements.

We’re going to be monitoring this situation closely, and have contacts at Fannie Mae, Freddie Mac, and in Congress who are trying to get more information on whether there are in fact any plans to enact another temporary stimulus bill that would increase the limit for 2010, but for now, borrowers should assume that the high-balance loan limit in the DC area will drop to $625,500 on 12/1/09, and go away entirely on 1/1/10.

For the detail-oriented people out there:

• HERA sets the high-balance limit at the lesser of 115% of the median MSA sales price (as published by FHFA each October) or $625,500, which means that all MSAs w/ median sales prices above $544k are capped at $625,500, and all MSAs w/ median sales prices below $363k are not considered high-cost and are capped at the regular conforming limit (currently $417k). In October 2008, FHFA’s published median MSA sales price for the DC MSA was more than $544k, so the limit for 2009 was $625,500.
• The exact FHFA numbers for 2010 won’t be published until October 2009. NAR does publish very similar statistics, however, and based on NAR’s numbers for the last quarter, as well as FHFA’s own HPI numbers, most MSAs (including DC) will have median sales prices below $363k, which is why we are assuming that high-balance loans will effectively be eliminated as of 1/1/2010.
• The exact history of high-balance conforming limits in the last few years is actually more even more complicated. In Feb 2008, Congress passed the Economic Stimulus Act of 2008, which raised the conforming limit to $729,750 in the highest-cost areas, but which expired on 1/1/2009. Also, Fannie Mae, Freddie Mac, and the lenders that work with them took some time to implement the changes in ARRA 2009, during which time the practical limit was still the HERA limit of $625,500. So the high-balance limits in the highest-cost areas such as DC were $729,750 from 2/2008-1/2009, $625,500 from 1/2009-2/2009, then legally $729,750 but still practically $625,500 from 2/2009-4/2009, and then $729,750 from 4/2009 to the present. Expect a similar series of confusing changes in late 2009 and early 2010, especially if new legislation is passed to change the limits yet again.

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1. Historical Conforming Loan Limits
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