Government

Gov't Takes A Baby Step Back From Housing Market

Starting this fall, the massive government effort to prop up the housing market will become slightly less massive.

The cap on mortgages backed by Fannie and Freddie — loans where taxpayers are on the hook if borrowers don't pay — will fall in some parts of the country.

During the crisis, Congress raised the cap to $729,750 in areas where homes are most expensive. Starting in October, that will fall to $625,500. The limit varies by county; this spreadsheet from CalculatedRisk has a complete list.

Mortgages that are too expensive to get backing from Fannie and Freddie are known as jumbo loans; they typically carry higher interest rates and require bigger down payments.

When borrowing costs go up, home prices tend to fall. So the lower caps could put downward pressure on home prices.

But the number of mortgages affected by the change is likely to be relatively small nationwide. If the lower caps had been in effect last year, Fannie and Freddie would have backed about 50,000 fewer loans, according to the WSJ. That's about 1 percent of the 5 million home sales per year in the U.S.

Still, as CalculatedRisk points out, the lowering of the cap is significant because it's a baby step back from the extraordinary measures the government has taken to prop up the housing market over the past few years.

For More:

See our series, The Rise And Fall Of Fannie And Freddie

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