The maximum size of conforming mortgages that Fannie Mae or Freddie Mac can insure is scheduled to drop on October 1st. The maximum size of conforming mortgages varies from county to county. The most extreme changes will take the limits from about $730,000 down to $425,000. In most of the more expensive markets, the limit is likely to be around $625,000. This change has been in the works for a long time and dates back to legislation passed by Congress some three years ago. Discussion was sparked today by an article in the Wall Street Journal. A spreadsheet with a county by county list is posted at Calculated Risk.
Lowering mortgage limits makes financing a new home more difficult, probably squeeze some buyers out of the market and put downward pressure on home prices. On the other side of the debate, the federal government dominates the mortgage market like never before and many argue that the government should step back so that private sector lenders and mortgage insurers can play a much greater role in financing homes. Both sides of the debate have merit. Which side someone favors probably depends on how optimistic they are about housing versus how much they want the government out of the mortgage business. From the discussions heard today, these reduced limits are likely to go into effect as scheduled on October 1st.