Limits raised on Fannie Mae, Freddie Mac loans

The Federal Housing Finance Agency announced an increase in loan limits Tuesday that will allow mortgage giants Fannie Mae and Freddie Mac to back loans of nearly $1 million in some of the most expensive U.S. housing markets.

Reflecting the surge in home prices during the COVID-19 pandemic, Fannie and Freddie will be able to buy loans of $970,800 in areas including San Francisco, Los Angeles and New York, the agency announced Tuesday. The increased loan limits apply to single-family residences.

Fannie and Freddie don’t make mortgages. They buy them from lenders, wrap them into securities and guarantee repayment of principal and interest to investors. The federal government took control of the companies during the 2008 financial crisis and bailed them out as mortgage defaults mounted.

In other parts of the country, loan limits will increase to $647,200 next year from $548,250 in 2021, the FHFA said. The changes are aimed at making it more affordable for Americans to purchase homes.

The pandemic has sparked fierce competition for properties as Americans seek more space to live and work. Record-low mortgage rates have also fueled the real estate frenzy. More owners are expected to list their properties for sale in the coming months, which would help ease the inventory shortage. But demand remains intense.

A measure of home prices in 20 U.S. cities jumped 19.1% in September, the S&P CoreLogic Case-Shiller index showed Tuesday. Nationwide, prices climbed 19.5%, the data show.