Starting October 1st Fannie Mae and Freddie Mac will adjust the size of mortgages they will guarantee in high-cost areas around the nation. At that point the maximum loan amount that both Fannie and Freddie will drop from $729,750 to $625,500. As a result this move may make mortgages more expensive and/or harder to secure for some buyers.
Furthermore, other mortgage lenders may be motivated to make similar changes because of reduced government-backed loan assistance.
Stan Humphries, Chief Economist at Zillow said, "For people planning on exiting the market altogether, that is a compelling proposition. Home sellers may have to be patient to get the price they want. The curbs on government-backed loans could, at the margin, reduce the available pool of buyers."
This change will mean that anybody who wants a government-backed mortgage for a $1-million home may have to come up with a $370,000 down payment instead of $270,000 after October 1st.
Real estate markets where $1 million buys a nice house, but not a mansion has been picking up. The National Association of Realtors has reported that sales of homes over $1 million were up over 5 percent in March over the same month in 2010 and with this change from Fannie and Freddie there could be an acceleration of activity in this market.
The good news is that there is a chance that private mortgage lenders may step in and fill the gap when Fannie and Freddie's changes go into effect.