Conforming loan

In the United States, a conforming loan is a mortgage loan that conforms to GSE (Fannie Mae and Freddie Mac) guidelines.^[1] The most well-known guideline is the size of the loan, which as of 2013 was generally limited to $417,000 for single family homes in the continental US.^[2] Other guidelines include borrower's loan-to-value ratio (i.e. the size of down payment), debt-to-income ratio, credit score and history, documentation requirements, etc.^[3]

In general, any loan which does not meet guidelines is a non-conforming loan. A loan which does not meet guidelines specifically because the loan amount exceeds the guideline limits is known as a jumbo loan.^[1]

History

Starting in 1970, Fannie Mae was authorized by the United States Government to purchase residential mortgage loans. Fannie Mae worked with Freddie Mac to develop uniform mortgage documents and national standards for what would come to be known as a conforming loan.^[1]

Importance

Fannie Mae and Freddie Mac are continuously in the market for conforming loans; because of this, conforming loans benefit from greater liquidity than non-conforming loans.^[1]

Criteria

The Federal Housing Finance Agency (FHFA) publishes annual conforming loan limits which dictates the mortgages that Fannie Mae and Freddie Mac can buy.^[4] The maximum loan amount is set based on the October-to-October changes in median home price, above which a mortgage is considered a jumbo loan, and typically has higher rates associated with it. This is because both Fannie Mae and Freddie Mac only buy loans that are conforming, to repackage into the secondary market, making the demand for a non-conforming loan much less. By virtue of the laws of supply and demand, then, it is harder for lenders to sell the loans, thus it would cost more to the consumers (typically 1/4 to 1/2 of a percent.)

Conforming Loan Limits

Per Fannie Mae:^[5]

Year	Historical Conventional Loan Limits					High Cost Area
	Single Family	Two Family	Three Family	Four Family	Second Loan	Single Family
2014	$ 417,000	$ 533,850	$ 645,300	$ 801,950	$ 208,500	$ 625,500
2013	$ 417,000	$ 533,850	$ 645,300	$ 801,950	$ 208,500	$ 625,500
2012	$ 417,000	$ 533,850	$ 645,300	$ 801,950	$ 208,500	$ 625,500
2011	$ 417,000	$ 533,850	$ 645,300	$ 801,950	$ 208,500	$ 625,500
2010	$ 417,000	$ 533,850	$ 645,300	$ 801,950	$ 208,500	$ 625,500
2009	$ 417,000	$ 533,850	$ 645,300	$ 801,950	$ 208,500	$ 625,500
2008	$ 417,000	$ 533,850	$ 645,300	$ 801,950	$ 208,500	$ 625,500
2007	$ 417,000	$ 533,850	$ 645,300	$ 801,950	$ 208,500	$ 625,500
2006	$ 417,000	$ 533,850	$ 645,300	$ 801,950	$ 208,500	$ 625,500
2005	$ 359,650	$ 460,400	$ 556,500	$ 691,600	$ 179,825	$ 539,475
2004	$ 333,700	$ 427,150	$ 516,300	$ 641,650	$ 166,850	$ 500,550
2003	$ 322,700	$ 413,100	$ 499,300	$ 620,500	$ 161,350	$ 484,050
2002	$ 300,700	$ 384,900	$ 465,200	$ 578,150	$ 150,350	$ 451,050
2001	$ 275,000	$ 351,950	$ 425,400	$ 528,700	$ 137,500	$ 412,500
2000	$ 252,700	$ 323,400	$ 390,900	$ 485,800	$ 126,350	$ 379,050
1999	$ 240,000	$ 307,100	$ 371,200	$ 461,350	$ 120,000	$ 360,000
1998	$ 227,150	$ 290,650	$ 351,300	$ 436,600	$ 113,575	$ 340,725
1997	$ 214,600	$ 274,550	$ 331,850	$ 412,450	$ 107,300	$ 321,900
1996	$ 207,000	$ 264,750	$ 320,050	$ 397,800	$ 103,500	$ 310,500
1995	$ 203,150	$ 259,850	$ 314,100	$ 390,400	$ 101,575	$ 304,725
1994	$ 203,150	$ 259,850	$ 314,100	$ 390,400	$ 101,575	$ 304,725
1993	$ 203,150	$ 259,850	$ 314,100	$ 390,400	$ 101,575	$ 304,725
1992	$ 202,300	$ 258,800	$ 312,800	$ 388,800	$ 101,150	$ 303,450
1991	$ 191,250	$ 244,650	$ 295,650	$ 367,500	$ 95,625	$ 286,875
1990	$ 187,450	$ 239,750	$ 289,750	$ 360,150	$ 93,725	$ 281,175
1989	$ 187,600	$ 239,950	$ 290,000	$ 360,450	$ 93,800	$ 281,400
1988	$ 168,700	$ 215,800	$ 260,800	$ 324,150	$ 84,350	$ 253,050
1987	$ 153,100	$ 195,850	$ 236,650	$ 294,150	$ 76,550	$ 229,650
1986	$ 133,250	$ 170,450	$ 205,950	$ 256,000	$ 66,625	$ 199,875
1985	$ 115,300	$ 147,500	$ 178,200	$ 221,500	$ 57,650	$ 172,950
1984	$ 114,000	$ 145,800	$ 176,100	$ 218,900	$ 57,000	$ 171,000
1983	$ 108,300	$ 138,500	$ 167,200	$ 207,900	$ 108,300	$ 162,450
1982	$ 107,000	$ 136,800	$ 165,100	$ 205,300	$ 107,000	$ 160,500
1981	$ 98,500	$ 126,000	$ 152,000	$ 189,000	$ 98,500	$ 147,750
1980	$ 93,750	$ 120,000	$ 145,000	$ 180,000	N/A	$ 140,625
Limits for Alaska, Hawaii, Virgin Islands and Guam are 50% higher. Virgin Islands was designated a high cost area in 1992 and Guam in 2001. Prior to 1984, second mortgage limits were the same as first mortgage limits. Subsequent legislation reduced the limits to 50% of first mortgage limits. Fannie Mae had no second mortgage program before 1981.

2008 Economic Stimulus Bill

A temporary increase in the Conforming Loan Limits for high-cost areas of living has been incorporated into the 2008 economic stimulus package. Congress has authorized an increase of the single family residences limits to the lesser of $729,750 or 125% of the median home value within the metropolitan statistical area (MSA). High-cost loans are only available through FHA loans.

The bill was signed into law by President Bush on February 13, 2008,^[6] but the new rates are still not being honored by any lenders (as of March 30, 2015).

The new Jumbo-Conforming program has been adopted by Fannie Mae and Freddie Mac effective April 1, 2008 until December 31, 2010.^[7]

References

1. Wiedemer, John (2001). Real Estate Finance, 8th Edition. Prentice Hall. pp. 44, 78–86.
2. Loan Limits Fannie Mae
3. "Mortgage Tools - Conforming Loan Limits". Zillow. Retrieved 21 September 2013.
4. http://www.fhfa.gov/DataTools/Downloads/Pages/Conforming-Loan-Limits.aspx
5. Historical Conventional Loan Limits, Fannie Mae, Last updated 2011-12-31. (.pdf, 23KB, 1 page)
6. Bush, House Hammer Out $150 Billion Stimulus Bill(2008), Washington Post