Fannie Mae and Freddie Mac will buy loans of up to $770,500 in Greater Boston, and up to nearly $1 million on Martha’s Vineyard and Nantucket.

With the surge in homebuying amid a limited housing supply continuing to drive up sale prices during the pandemic, lenders and borrowers could see opportunities open up next year for larger mortgages.  

An 18 percent nationwide increase in home prices has triggered an increase of almost $100,000 to the loan size limit on mortgages lenders can sell to Fannie Mae and Freddie Mac. Borrowers in Greater Boston will have an even higher ceiling. 

These higher amounts will give lenders and consumers more options as they maneuver the housing market, lenders say. 

But in about 100 counties across the United States, including Nantucket and Dukes counties, that conforming limit next year will be just shy of $1 million, raising questions about the future of the government-sponsored enterprises and the loans they guarantee. 

“This is clearly going to spark and heat up that debate in terms of what role should Fannie Mae and Freddie Mac play,” said David Brennan, chief residential and consumer lending officer at Hyannis-based Cape Cod Five. 

Median Boston-Area Price Nears $700K 

For lenders to sell mortgages to Fannie Mae and Freddie Mac, the loan amount cannot exceed the Federal Housing Finance Agency’s conforming limit, which for owner-occupied single-family and condominium properties in 2022 will be $647,200, up from $548,250 in 2021 and $484,350 in 2020. 

The FHFA adjusts the conforming loan limit to reflect the change in the average U.S. home price, as required by the 2008 Housing and Economic Recovery Act (HERA). The conforming limit is determined by the FHFA’s estimated housing price increase. According to FHFA’s seasonally adjusted data, house prices in the U.S. increased by 18.05 percent between the third quarters of 2020 and 2021. 

“House price appreciation reached its highest historical level in the quarterly series,” William Doerner, supervisory economist in FHFA’s division of research and statistics, said in a statement announcing the FHFA’s latest House Price Index report. “Compared to a year ago, annual gains have increased in every state and metro area.” 

Counties with more expensive homes will have even higher conforming limits. Suffolk, Essex, Middlesex, Norfolk and Plymouth counties will see the conforming loan limit go from $724,500 in 2021 to $770,500 in 2022, a 6.3 percent increase. The 2020 limit in these counties was $690,000. 

Massachusetts has seen the year-to-date median single-family sale price through October of 2021 increase 15 percent year-over-year to $510,000, according to The Warren Group, publisher of Banker & Tradesman. The year-to-date median sale price was $690,000 in Middlesex County, $640,000 in Norfolk County and $685,500 in Suffolk County. 

With the pandemic driving people to reevaluate what they need in a home and where they want to live, the demand for housing amid limited supply has driven up housing prices. But for many homebuyers, the high prices have been offset by historically low interest rates, keeping their monthly mortgage payments down. 

First-Time Buyers Need Conforming Loans 

But in areas like Greater Boston, high prices often mean that borrowers need jumbo loans, which Fannie Mae and Freddie Mac do not buy, reducing many mortgage lenders’ desire to issue them and find buyers for them on the secondary market. 

In the decade after 2007-2008 financial crisis, jumbo loans came with higher interest rates as investors on the secondary market had concerns about risks, said Andrew Marquis, a loan officer with CrossCountry Mortgage in Burlington. He added that over the past year or so, conforming and jumbo loans have had comparable rates as investors now had renewed confidence in the level of risk. 

While Marquis sees demand for both products, conforming loans do carry some benefits for consumers, including fewer challenges in qualifying for a loan and an easier process to approve and close the loan. Conforming loans’ lower down payment requirements are often critical for first-time homebuyers, who need that flexibility.  

With student loans, rent payments and other expenses, accumulating money for a down payment has been challenging for potential homeowners in Greater Boston, Marquis said. 

“We’ve seen values go up drastically,” Marquis said. “The ability to have access to loan amounts for single-family properties where people can put 5 percent down and get a great loan, I think is absolutely satisfying some of the demand in the market for that product.” 

The Next Debate: GSE’s Future 

While nonbank mortgage companies typically sell all their mortgage loans, community banks sometimes keep these loans on their balance sheets.  

The increase in conforming loan limits will open up options for lenders at a time when profit margins are still tight, said Ed McDonald, president of Salem Five Mortgage.  

Borrowers will also have more choice of homes to buy, especially those in the counties that are seeing the conforming loan limit increase from $548,250 to $647,200. 

Cape Cod Five is active in both selling loans and keeping them in the bank’s portfolio, Brennan said, noting that the bank services the loan either way. Having higher limits gives the bank more options to make strategic decisions about whether selling or keeping the loan in their portfolio is more prudent, Brennan added, including those made on Nantucket and Martha’s Vineyard, which now have a conforming loan limit of $970,800.  

Diane McLaughlin

“The more choices lenders have, they pass that along to consumers,” McDonald said. “Anything to provide more options to lenders ultimately gets down to the marketplace of borrowers, and that’s a good thing.” 

But even with more options for banks, the higher conforming loan limits do have other consequences for banks, Brennan said. 

While the previous administration had been looking at moving Fannie Mae and Freddie Mac out of government receivership, which might have reduced their footprint on the secondary market, Brennan said, the Biden administration has been looking at the role the enterprises could have in the housing market, including whether the enterprises’ should be confined more to affordable housing initiatives. 

“That’s got to be a debate,” Brennan said. “Whether we need Fannie and Freddie to try to create more mortgage loans and make sure that the market is stable, or is their footprint now growing too big.”