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In what’s becoming an annual tradition with big mortgage lenders, Rocket Mortgage is getting a jump on an expected increase in Fannie Mae and Freddie Mac’s 2024 loan limits and pricing loans of up to $750,000 as conforming.
Announced Monday, Rocket Mortgage’s higher conforming loan limit could help many qualifying borrowers avoid taking out a jumbo mortgage at a potentially higher rate. The higher conforming limit will also be available through mortgage brokers partnered with the company’s wholesale channel, Rocket Pro TPO.
Mike Fawaz
“We did it last year, and I can tell you the feedback was incredible,” said Mike Fawaz, executive vice president of Rocket Pro TPO. “But really, I think it’s more significant this year, as I think about where the economy’s been and what’s happened in the mortgage industry. I’m really truly excited about this one.”
The 2023 baseline conforming loan limit for Fannie Mae and Freddie Mac is still $726,200 for one-unit properties in most of the country, or up to $1,089,300 in Alaska, Hawaii and other high-cost markets. Under a formula mandated by Congress, the conforming loan limit is tied to a home price index maintained by Fannie and Freddie’s regulator, the Federal Housing Finance Agency (FHFA).
Rocket Mortgage’s new conforming loan limits
Rocket Mortgage conforming loan limits as of Oct. 2, 2023.
Rocket will treat loans of up to $750,000 for one-unit properties in the lower 48 states as conforming, and up to $1.125 million in Alaska and Hawaii. Multi-unit homes have higher limits, so Rocket will price loans of up to $2,163,900 on four-unit homes in Alaska or Hawaii as conforming.
That means Rocket is confident that when the numbers for the third quarter are published in November, the FHFA’s seasonally adjusted, expanded-data House Price Index will show home prices posted annual gains of at least 3.3 percent. That would be the smallest increase since 2017, when the conforming loan limit was raised for the first time in a decade following the Great Recession of 2007-09.
“We’re very comfortable with that $750,000 number,” Fawaz said. “We’re going to be holding these loans anyway until the new loan limit goes out” in January.
Baseline conforming loan limits, 2020-2023
Source: Federal Housing Finance Agency.
When home prices soared during the pandemic, the conforming loan limit climbed with them, jumping by a record 18 percent in 2022 and another 12.4 percent in 2023, allowing Fannie and Freddie to buy mortgages exceeding $1 million in many high-cost markets.
Prices were climbing so quickly that for the past two years, lenders began guessing what the new conforming loan limit would be before the FHFA’s official announcement in November so they could get a head start offering bigger loans as conforming. Lenders would then hold the jumbo loans that they’d priced as conforming on their books until the new limits took effect on Jan. 1.
While the increase in the 2024 conforming loan limit is expected to be smallest in years, it could make a big difference to borrowers who would otherwise have to take out a jumbo loan.
Because Fannie and Freddie can’t buy or guarantee jumbo mortgages that exceed the conforming loan limit, jumbo mortgages tend to have stricter underwriting and higher down payment requirements, and some borrowers may also pay higher rates than they would for conforming loans.
At this time last year, rates on jumbo mortgages were about half a percentage point less than for conforming loans. Now, rates on jumbo loans are nearly 20 basis points higher than for conforming loans, according to rate lock data tracked by the Optimal Blue Mortgage Market Indices.
While conforming loans are largely financed by investor purchases of mortgage-backed securities, the jumbo mortgage space is almost entirely funded by the banking sector. Stresses on regional banks sparked by the failures of Silicon Valley Bank, Signature Bank and First Republic Bank have made jumbo loans more expensive and harder to come by this year.
“The market has changed a lot, and jumbo pricing isn’t as favorable as it used to be,” Fawaz said. “Any client that went out to an open house on Sunday [thinking they would need a jumbo loan] … if it’s within the new loan limit, it’s no longer jumbo. So now you’re getting into a conforming mortgage which should be significantly better for the consumer.”
While other lenders may follow Rocket’s lead, “We’re excited because Rocket Pro TPO’s broker partners will be one of the only ones in the market offering this right now,” Fawaz said.
Editor’s note: This story has been updated with revised numbers from Rocket on its conforming loan limits for multiple unit properties.
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