Fannie Mae and Freddie Mac, the "government sponsored enterprises" or GSEs which provide the lion's share of money for home loans, could be in line for what may be the largest jump ever in the so-called "conforming loan limit," topping even last year's 8.83 percent, $22,300 increase.

Then again, given the timing of the Federal Housing Finance Board's monthly housing price survey, it also is possible the limit may not go up nearly as much as it has in recent years.

The conforming loan limit, currently $275,000, is the ceiling on mortgages that Fannie Mae and Freddie Mac can purchase or securitize.

Rates on loans above the lid -- called "jumbo" financing -- usually cost a quarter to half-a-percent more than those under the ceiling. Consequently, an increase in the limit would mean somewhat lower monthly payments for next year's buyers whose mortgages fall between the old and new ceiling.

Increases in the GSE limit are based on the average price of houses from one October to the next, so the ceiling for 2002 won't be known until Nov. 28, when the Housing Finance Board is scheduled to release its next survey.

But based on the board's September figures, which were released late last month, the increase could be in the 10 percent range, raising the limit to well over $300,000.

According to the board, the average price of new and used houses in September was $219,900, a 10 percent increase from $199,900 a year ago. And if that percentage increase holds true in October, the Fannie Mae-Freddie Mac ceiling would go up by a corresponding 10 percent next year to $302,500.

However, although the results of the government's price tabulations are based on sales that close during the last five days of every month and therefore cover transactions settled after the terrorist attacks most, if not all, of those were already in the pipeline prior to Sept. 11.

The October survey, on the other hand, will reflect deals reached just about the time of the tragedies. "If you count back 45 days, you'll be right about there," said the FHFB's Joe McKenzie. And according to the National Association of Realtors, sales and listings came to almost a complete halt immediately after the attacks.

Existing home sales rebounded to within 80-90 percent of normal by the weekend, NAR says. For the entire month, though, sales nationwide were off by nearly 12 percent. On the other hand, new home sales seemed to fair much better, falling only 1.4 percent for the month.

The median price paid for an existing house in September also was down $900. But that was a normal seasonal occurrence and key housing economists don't expect housing prices to tank. Appreciation may slow somewhat, they say, but prices won't decline.

Still, there's no telling what impact, if any, the September 11th attacks have had on the willingness of buyers to pay top dollar or of sellers to bargain more aggressively. At least not yet.

The average price in September was the result of one of the largest month-to-month increases in the last year. Only the $4,000 jump, from $200,800 in October to $204,800 in November, and the $4,600 hike, from $210,000 in April to $214,600 in May, were greater than the $3,400 improvement, from $216,500 to $219,900, counted between August and September.

It also should be noted that the average declined on two different occasions in the proceeding 12 months. In April, it dipped $900 from $210,900 in March, and in July, it slid $1,200 from $216,600 in June.

But the only time the average fell from one October to the next, both Fannie Mae and Freddie Mac declined to lower their loan limits for the following year, maintaining that their charters required them only to increase the ceiling -- but not to lower it.

For more articles by Lew Sichelman, please press here.

Published: November 5, 2001

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