Fannie Mae and Freddie Mac will back home loans up to $636,150 in high-cost areas next year, the bailed-out companies’ regulator announced Wednesday, a move that reflects rising home prices across the country.
The two government-sponsored enterprises currently guarantee loans up to $625,500 in expensive areas.
The mortgage giants’ regulator, the Federal Housing Finance Agency, reported data on Wednesday that confirmed that average house prices have risen above the level they reached in the third quarter of 2007, which was when housing prices began the free-fall that would result in the financial crisis.
With housing prices finally higher, the agency raised the cut-off for loans it will allow Fannie and Freddie to back. Now, they will buy loans up to $424,100 in most areas of the country, an increase from $417,000 in past years. In high-cost areas — mostly along the East Coast and California — the limit goes up to $636,150.
The median price for existing homes across the U.S. was $232,200 in October, according to the National Association of Realtors.
Fannie and Freddie do not make home loans, but buy loans from lenders and package them into securities that they sell to investors with a guarantee to make them whole if the loans go bad. In doing so, Fannie and Freddie help create a secondary market for mortgages.
The two companies were taken into government custody after running into trouble amid the crisis and have remained under the FHFA’s direction since then.
President Obama and a bipartisan group of senators sought in past years to shutter Fannie and Freddie and have private capital play a larger role in guaranteeing loans, although that effort failed to gain political traction. House Republicans tried to advance legislation that would lessen the government’s role in guaranteeing mortgages, but also couldn’t get support for that bill.
