Lenders announce higher conventional loan limits early

Borrowers can save a half percent on loans of $647,201 to $715,000.

By JEFF LAZERSON | jlazerson@mortgagegrader.com | MortgageGrader.com

* Article originally posted in Orange County Register on September 8, 2022

Rocket Mortgage, the nation’s largest conventional home-loan provider, increased its conforming loan limits to $715,000 as of Tuesday, Sept. 6, well ahead of the Federal Housing Finance Agency’s Nov. 30 annual announcement for 2023.

The FHFA’s 2022 conforming loan limit for all Fannie Mae and Freddie Mac mortgages is $647,200.

Why such an early announcement?

“This is a unique market. We want to use every inch to help our borrowers,” said Austin Niemiec, executive vice president at Rocket Pro TPO. “With rates and pricing rising, (making this announcement) several months early is a big win.”

The online news site HousingWire reported Wednesday, Sept. 7, that lender United Wholesale Mortgage is matching Rocket Mortgage’s ceiling on conforming loans, which qualify for lower rates.

Freddie Mac announced Thursday, Sept. 8, that rates for the average 30-year fixed mortgage climbed to 5.89%, the highest rate since the fall of 2008. The average rate for the 15-year fixed jumped above 5% for the first time since December 2011.

Rocket Mortgage’s market share for conventional conforming loans was 8.2% through the second quarter of the year, the largest market share in the nation, according to Guy Cecala, CEO and publisher of Inside Mortgage Finance. Nearly 78% of its business was for conforming conventional loans.

By boosting their conforming loan limits, Rocket and United Wholesale Mortgage are offering a price break for purchase, refinance or cash-out refinance loans of $647,201 to $715,000. That gives them a jump on the competition until the FHFA announces 2023 rates for all lenders in November.

For Los Angeles and Orange counties, there is a so-called high-balance loan limit (or agency jumbo) for loan balances of $647,201 to $970,800. High-balance rates may be at least one-half point higher than conforming loan rates.

(Full disclosure: My mortgage brokerage, Mortgage Grader, is a longtime Rocket customer.)

For example, the 30-year fixed conforming rate for a homebuyer putting 20% down with excellent credit was 5.75% with a cost of 0.153 point, or just over one-eighth of a percentage point.

The high-balance rate with the same parameters came in at 6.25%. with a cost of 0.103 of a point. The monthly payment on the conforming loan is $225 lower: $4,085 for the conforming loan vs. $4,310 for the high-balance loan.

FHFA doesn’t consider the Inland Empire to be a high-cost area, so there’s no “agency jumbo” available in Riverside and San Bernardino counties. Borrowers there had to apply for jumbo loans when their mortgage exceeded $647,200 this year.

Jumbo fixed-rate mortgages tend to have higher rates, with tougher qualifying standards to boot. But Inland Empire borrowers are eligible for this Rocket boost to $715,000 without having to apply for a jumbo fixed.

Each year, the FHFA calculates the agency loan limit for the following year to reflect the change in the average U.S. house price for the third quarter of each year. This calculation is based on average U.S. home price increases for the previous year in the FHFA House Price Index.

While the third quarter has not yet ended, the national median sales price for the second quarter increased 17.7% from the year before.

Rocket bumped its conforming number by just 10.5%. So, it’s likely FHFA’s 2023 conforming loan limit will be higher than $715,000.

Why didn’t Rocket bump the agency jumbo loan limits as well?

“Because the change estimation isn’t as straightforward as the conventional conforming,” said John Perich, Rocket Central’s public relations director.

Rocket is making this offer available to borrowers using mortgage brokers and those applying directly for a loan.

If you are going to consider Rocket, you should compare pricing for both consumer-direct applications and using a mortgage broker. You can apply directly on Rocket’s website, or you can search for a Rocket-approved mortgage broker near you.

You can also inquire with other lenders to see if they will match Rocket’s higher conforming balance offer. As we get closer to FHFA’s Nov. 30 announcement, expect more lenders to match.

Freddie Mac rate news: The 30-year fixed rate averaged 5.89%, 23 basis points higher than last week. The 15-year fixed rate averaged 5.16%, 18 basis points higher than last week. Rates for both hit 11 1/2-year highs.

The Mortgage Bankers Association reported a 0.8% decrease in mortgage applications from the previous week.

Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $647,200 loan, last year’s payment was $1,148 less than this week’s payment of $3,835.

What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages without points: A 30-year FHA at 5.125%, a 15-year conventional at 5.125%, a 30-year conventional at 5.75%, a 15-year conventional high-balance ($647,201 to $970,800) at 5.625%, a 30-year conventional high-balance at 6.25% and a 30-year purchase jumbo at 5.5%.

Eye catcher loan of the week: A 30-year jumbo ARM locked at 4.5% for the first five years, with one point cost.

Jeff Lazerson is a mortgage broker. He can be reached at 949-334-2424 or jlazerson@mortgagegrader.com. His website is www.mortgagegrader.com.

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* Specific loan program availability and requirements may vary. Please get in touch with your mortgage advisor for more information.