Consumers shopping for a home might want to pick up the pace: Getting a mortgage will likely become more challenging and costly next year.
Loan limits for popular mortgages are scheduled to drop in January, according to a Wall Street Journal report this week. The Federal Housing Finance Agency is planning to slash the maximum size of mortgages eligible to be backed by Fannie Mae and Freddie Mac, which currently run as high as $417,000 in most parts of the country and up to $625,500 in pricier cities, including New York and San Francisco.
If shopping for a new home is on your to-do list, you might want to get it done by the end of the year. MarketWatch's AnnaMaria Andriotis explains the restrictions potential buyers will face, on MoneyBeat. Photo: Getty Images.
That same month, new mortgage rules by the Consumer Financial Protection Bureau go into effect, which restrict the types of mortgages lenders can provide. The changes could leave next year’s mortgage applicants with fewer and more expensive financing options to choose from than what’s currently available, experts say. “If you’re comfortable with what you can get this year, lock it in,” says John Vogel, adjunct professor of real estate at the Tuck School of Business at Dartmouth College. “Most rules that will come are in fact going to be less favorable to borrowers.”
This all comes as the government tries to reduce its role in the mortgage market. During the second quarter, two out of three mortgages were funded by Fannie Mae and Freddie Mac, according to Inside Mortgage Finance, a trade publication. By lowering the loan sizes backed by these agencies, regulators are hoping that lenders will step in to pick up the mortgage applicants who are impacted and that a private market for purchasing these loans — which basically disappeared in 2008 — will reopen. There has been some growth in private mortgage financing recently, though it remains small compared with pre-recession advances in the space. Just 2.1% of mortgages originated in April were sold to private investors, while roughly 90% were purchased by government agencies, according to Lender Processing Services, a mortgage-data tracking firm.