Real estate ended 2011 with a whiplash-worthy financing reversal and headed into 2012 with more questions than answers about mortgage backers and interest rates. Temporary limits on the size of mortgages backed by Fannie Mae, Freddie Mac and Federal Housing Administration expired on Oct. 1, reverting to a maximum of $417,000 in most of the country and $625,500 in high-cost locales including the Washington metro area. Just weeks later Congress returned the FHA limits to the old schedule, with a top loan limit of $729,750 but left Fannie and Freddie limits untouched.
Most loans nationwide are under $417,000 and national studies anticipated little effect from the rollback. But Koki Adasi, associate broker at Koki & Associates Inc., in Silver Spring, said when the changes first took effect “we noticed the difference immediately; there were far fewer inquiries coming in on-line where most first-time buyers start.”
The year ended with interest rates at all-time lows. Freddie Mac quoted a 30-year, fixed-rate mortgage at 3.95 percent for the week ended Dec. 29 and projected an average rate of 4.5 percent across 2012.
Jonathan Galaviz, chief economist of Galaviz & Company LLC, said rates “will likely remain at these record low levels for the first half of the year.”
Rates do not appear to be entirely driving buying decisions, however. “Rates mean nothing to people without the other parts of the package,” said David Bailey, owner of the Mortgage Outlet on Long Island. “If people don’t have the income or a job; a good credit rating, equity or a down payment, rates don’t matter.”
Another twist came when Congress used the payroll tax extension bill to add a new fee to Fannie and Freddie loans. The amount is fluid but will be at least 10 basis points, i.e. $100 per $100,000 loan on top of a current average fee of 23 basis points. Though Bailey said this fee “will get lost in the shuffle of all of the other fees,” but Adasi believes it could affect first-time buyers and add to loan costs.
Though the fee takes effect April 1 some lenders already have started pricing it in to their loans.
