Housing Economics - 06/24/2011 (Plain Text Version)

On October 1, 2011, some mortgage loan limits for the government-sponsored enterprises Fannie Mae and Freddie Mac (GSEs) and the Federal Housing Administration (FHA) will drop from their current temporary levels to reduced limits based on permanent criteria established by Congress in 2008.

 

This paper presents estimates of the number of homes in the affected counties that become ineligible for GSE and FHA mortgages given reasonable estimates of their market value and assumed levels of buyer downpayments. Affected homes, if they were to be placed onto the for-sale market, would likely require financing with higher mortgage interest rates and other less favorable loan terms, such as higher required downpayments and more stringent credit history thresholds. This would reduce housing demand and place downward pressure on prices. As home sales are inter-related (for example, starter homes are sold to first-time homebuyers by move-up buyers), this pressure on prices could spill over on other homes in the affected areas. Full report