Our brokers know that Orion offers a variety of loan products and amounts, individually tailored to your client’s needs. Brokers also know that the industry standard are loan amounts set by Fannie Mae and Freddie Mac. According to Federal Housing Finance Authority, which oversees Freddie and Fannie, home prices rose 18.5 percent year-over-year. Based on that home price appreciation gain, we should see 2022 conforming loan limits around $650k when officially announcedby the FHFA (historically after Thanksgiving). And although next month's housing price report will be the one FHFA uses to set the new limit officially, we thought it a good idea for Orion’s clients to understand the official process.

Loan limitsdetermine the approval guidelines for mortgages within the loan limit range. “Conforming,” or “conventional,” mortgages are funded by lenders and sold to either Fannie Mae or Freddie Mac (the GSEs, or government sponsored enterprises), which then pool mortgages and create mortgage-backed securities and sell them to investors. Lenders like Orion approve and fund conforming loans using guidelines established by either Fannie or Freddie (there are some slight variances). If a mortgage fits the guidelines, it can be purchased bythe GSEs. Investors purchase MBS from either Fannie or Freddie know that their investment meets the criteria required by the issuing GSE. Loan limits are set to ensure the GSEs are facilitating financing for families that can benefit the most from lower down payment, lower interest rate mortgages.

Every year the loan limits are reviewed and adjusted according to the home values across the country. FHFA determines the loan limits with its House Price Index report which tracks the average increase in home values over the year and then adjusts the loan limit accordingly. Since the creation of the conforming mortgage products in 1980 (with an original limit of $93,750) until 2006 there had never been a year without an increase in the loan limit (save for a $150 decline in 1990). From 2006 to 2016, including the year Orion opened its doors in 2014, the limit remained at $417,000. In 2008, as a reaction to the severe decline inreal estate sales and values, FHFA created the “high-balance” or “conforming jumbo” products for the GSEs, which have slightly stricter underwritingguidelines, higher loan limits, and higher costs/rates.

Limits are important because a family needing an Orion mortgage for $600,000 can obtain a conforming mortgage at a lower rate than a high-balanceor jumbo mortgage at a higher rate. The family needing a mortgage for up to what is estimated to be $950,000 next year can now benefit from easier underwriting standards and possibly a lower rate from a high-balance conforming mortgage instead of a “jumbo” mortgage. Higher loan limits enable families toafford a higher priced home, or the same priced home with a smaller down payment.

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