Number: RS22172
Title: The Conforming Loan Limit
Authors: N. Eric Weiss and Mark Jickling, Specialists in Financial Economics 
Abstract: The Economic Stimulus Act of 2008 enacted a temporary increase in the conforming loan limit. For mortgages originated between July 1, 2007, and December 31, 2008, the limit was capped at 175% of the statutory limit, or $729,750, in certain high-cost areas. The GSEs are able to purchase these conforming loans after December 31, 2008. The Housing and Economic Recovery Act of 2008 raised the limit permanently by up to 50% (that is, to $625,500) in high-cost housing areas, allowing the GSEs to expand into markets previously served by non-GSE institutions. If the GSEs supplant the existing securitizers of jumbo mortgage loans, there is likely to be some reduction of mortgage rates in high-cost areas, which will enable more prospective buyers to qualify for (or refinance) loans. Some would argue, however, that because the size of GSE operations already poses a potential risk to financial stability, it would be imprudent to permit a significant expansion of their activities. This report analyzes the implications of raising the conforming loan limit in high-cost areas.
Pages: 5
Date: December 31, 2008