Proposed Changes All Point to Higher Interest Rates to Come

The DC area mortgage market is about to get hit with a double whammy.

Last week, the Administration proposed lowering the “jumbo” loan limit from $729,750 in our area (one of the highest cost housing markets in the country) to $625,500. Technically, the $729k limit was ‘temporary’ but it had been extended several times and most people came to think of it as permanent. But the Administration is proposing letting it lapse this September, which means higher interest rates for any loans above the new lower limit.

Then, as part of the Administration’s final report advising a restructuring of the nation’s housing market, they signaled their intent to eliminate Fannie Mae and Freddie Mac, the nation’s largest mortgage market maker, which facilitates a nationwide lending environment, keeping fees low, though they acknowledged that moving too quickly could extend the housing decline. Seven years was thrown out as a target timeline, and three scenarios were presented as replacement options, though each has its own set of new risks for taxpayers.

The markets don’t like uncertainty, and these changes are likely to lead to higher mortgage rates in the near term. Home buyers, beware!

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