New CLL crosses the $1 million threshold for the first time
The Federal Housing Finance Agency (FHFA) has raised the 2023 baseline conforming loan limit (CLL) in most of the United States due to the home value growth surge seen in 2022.
That means Fannie and Freddie will be able to purchase mortgages up to $726,200 in 2023 – a hefty $79,000 increase from this year. The new ceiling loan limit for one-unit properties and in high-cost areas like San Francisco and New York will be $1,089,300 (which is 150% of $726,200), crossing the million-dollar threshold for the first time.
States with special statutory provisions, including Alaska, Hawaii, Guam, and the US Virgin Islands, will also have the $1,089,300 baseline loan limit for one-unit properties. Meanwhile, CLLs for properties with two units will be capped at $1,394,775 in high-cost areas, three units at $1,685,850, and four units at $2,095,200.
Following the FHFA’s announcement, the Housing Policy Council (HPC) issued a statement raising three key concerns about the CLL increase:
“Excessively high loan limits exacerbate the affordability crisis,” the HPC wrote in a Press release. “House prices have grown much faster than household income, in large part due to supply constraints and low-cost financing. Taxpayer backing of ever-increasing loan sizes provides a subsidy that results in slightly lower mortgage rates which, in turn, encourages people to buy more expensive homes. Ultimately, such backing feeds the runup in house prices, exacerbating the affordability challenges we face in today’s supply-constrained marketplace.
“The current system is overly reliant on government backing. Per data from the Urban Institute, when Fannie Mae and Freddie Mac went into conservatorship more than 14 years ago, 45% of the outstanding mortgage market was funded through Ginnie Mae, Fannie Mae, and Freddie Mac. Today, the government backs 67% of outstanding mortgages through securitization by these three entities. This is an enormous increase in the reliance upon government- and taxpayer-backing.
“Private capital should have a more meaningful role in our housing finance system. The dominance of government backing means the market has shifted away from relying on private companies to assess and manage mortgage credit risk; the housing finance system is more resilient when private capital shares the risk of loss. With appropriate reforms and transition, there is no reason to believe that private capital cannot serve a greater role than it does today. The question of the appropriate role of the government in the housing finance system has gone unanswered now for 14 years. The Housing Policy Council urges Congress and the Biden Administration to take up this question soon.”