A Report on the Economic Benefits of Adjusting Conforming Loan Limits

Dramatic increases in housing prices across the country have caused homeownership rates in major metropolitan areas to significantly lag behind the national average. This trend is occurring despite the large expansion of alternative mortgage lending options available to consumers and historically-low interest rates.

Fannie Mae and Freddie Mac, two government-sponsored enterprises chartered with the mission of increasing American homeownership, are restricted from participating in many high-cost metropolitan areas because of the conforming loan limit; a limit that restricts how large a loan that Fannie Mae and Freddie Mac can take on. As government sponsored entities, Fannie Mae and Freddie Mac are able to conduct business at a less expensive rate than a private financial institution. These cost savings are transferred to consumers that Fannie Mae and Freddie Mac service through lower interest rates, basically a subsidy to homeowners. Any loans that exceed the conforming loan limit are known as jumbo loans and have a typical ¼ to ½ point higher interest rate.