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Federal government will back $1 million mortgages for the first time

Demand rises for adjustable-rate mortgages
Demand rises for adjustable-rate mortgages 04:15

For the first time, the federal government will back mortgages of more than $1 million, a move that reflects the run-up in home prices across much of the nation. 

The Federal Housing Finance Agency (FHFA) on Tuesday said the maximum size of home-mortgage loans eligible for backing by Fannie Mae and Freddie Mac will jump to $1.089 million next year in high-cost markets. In most other markets, the maximum size of mortgages eligible for backing will be $726,200 in 2023, an increase of 12% from current limits, the agency said.

The new threshold means that more loans will qualify as so-called "conforming" loans, or mortgages that meet Fannie Mae and Freddie Mac's funding criteria and can be resold to investors. On a practical level, the higher limits for conforming loans could provide some relief to buyers of higher-priced properties because these mortgages typically offer lower interest rates.

The FHFA regularly resets its limits for conforming loans to reflect changes in real estate values — and home prices have surged during the pandemic. Since early 2020, the median sale price of a U.S. home has jumped almost 40% as record-low mortgage rates and work-from-home orders fueled a surge in demand for home ownership. 

In 2022, the limit for conforming loans in high-cost regions is $970,800, while all other homes have a limit of $647,200.

But with the Federal Reserve's regime of interest rate hikes in 2022, mortgages have marched higher. The typical 30-year fixed-rate mortgage now stands at about 6.6%, or double its level from the start of the year, Freddie Mac said on November 23. That's making it more difficult for some buyers to afford a new home. 

The high-cost regions where the federal government will back loans of more than $1 million include expensive coastal cities such as New York and Los Angeles, but also some ritzy areas in the Mountain West, including Wyoming's Teton County and Utah's Wasatch County, the FHFA said on Tuesday. 

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