Exit of Fannie and Freddie From the High-End Residential Mortgage Market

Coming Exit of Fannie and Freddie From the High-End Residential Mortgage Market Brings Concerns to Housing Finance, Home Prices and Sales Volumes — New York Times

Fannie Mae and Freddie Mac have backed nine out of every 10 residential loans made for the past three years—including those up to $729,750.  Prior to the federal bailout of Fannie and Freddie in 2008, maximum loan limits for the two GSEs was $417,000.  The higher-end loans, however, are coming to an end as regulators are reducing the temporary government backing of jumbo loans.  Fannie Mae is asking for another $6.2 billion of government aid would make the total contributions to this GSE rescue almost $100 billion.  

In Monterrey, California, for example, the maximum loan that Fannie will back will be $483,000.  Assuming an 80 percent loan to value ratio, then the selling price becomes $603,750.  Respective average list prices for the five most popular zip codes in Monterey County as reported by Trulia are as follows:


Fannie and Freddie’s temporary entry into the jumbo market saw a significant compression in jumbo loan interest rates—and their retreat will likely see those rates increase when compared to conventional loans and higher-end home prices decline as a result.

While Congress faces difficult decisions in reducing the record massive $1.6 trillion deficit (and that’s just for fiscal year 2011), the ramifications of these reductions will be felt wherever those cuts take place.  

The bottom line is that these cuts (assuming they are put in place) will cause additional negative impact in higher-end home prices.  
 

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