The Federal Housing Finance Agency (FHFA) on Tuesday announced that the baseline conforming loan limit for 2023 will be $726,200, an increase of 12.21%, or $79,000, compared to 2022.
The federal government, through government sponsored entities Fannie Mae and Freddie Mac, will now back mortgage loans north of $1 million, with the new ceiling loan limit for one-unit properties in most high-cost areas at $1,089,300 — or 150% of $726,200.
Special statutory provisions establish different loan limit calculations for Alaska, Hawaii, Guam, and the U.S. Virgin Islands. In these areas, the baseline loan limit will be $1,089,300 for one-unit properties.
“According to the nominal, seasonally adjusted, expanded-data FHFA HPI, house prices increased 12.21% on average, between the third quarters of 2021 and 2022. Therefore, the baseline CLL in 2023 will increase by the same percentage,” the FHFA said in a statement.
In 2022, the FHFA set the baseline conforming loan limit at $647,200, a 18% increase from the prior year. Over the past six years, the baseline loan limit has risen $209,200.
Desperate for volume in a high-rate environment, multiple nonbank lenders jumped the gun in raising conforming limits ahead of the FHFA’s formal announcement.
Rocket Mortgage, America’s second-largest lender, was first to raise limits in early September, pushing the conforming ceiling to $715,000 through its wholesale arm. Rival United Wholesale Mortgage, the nation’s largest lender, followed shortly thereafter, as did PennyMac, Finance of America Mortgage (now defunct) and wholesaler Homepoint.
It was hardly a surprise that lenders would increase loan limits ahead of the FHFA’s November announcement, though they did so earlier than in years past. In 2021, when rates were still in the low 3% range, lenders didn’t raise anticipated conventional loan limits until early October.
The Housing and Economic Recovery Act in 2008 established a formula for increasing conforming loan limits for Fannie Mae and Freddie Mac. The law mandated that the baseline could only rise after home prices returned to pre-recession levels.
That condition was met eight years later in 2016 when the FHFA increased conforming limits for the first time in a decade.