The so-called lending pipeline that has been clogged for so long, considered by many a top reason for lackluster home sales, may get worse come October — or possibly sooner.
The federal government has decided the size of loans eligible for government backing will go down in October. That's a step back from a temporary hike made three years ago, when Congress raised the maximum loan guarantee that Fannie Mae, Freddie Mac and federal agencies aimed at boosting the beleaguered market.
That move three years ago to hike the conforming loan limit made it cheaper for borrowers in more expensive housing markets to get mortgages, thanks to government guarantees that investors will receive payments on those mortgages, even if homeowners default. The change will take the maximum down from $729,750 to $625,500 in the more expensive housing markets.
Homeowners with loans too large to qualify for government-backed mortgages must seek a jumbo loan. Jumbo loans typically have higher interest rates and larger down-payment requirements.