Rocket Cos., Finance of America Mortgage and Homepoint have joined PennyMac and United Wholesale Mortgage in raising their conforming loan limit to $625,000, likely looking to drive earnings at a time when mortgage volume is expected to shrink.
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A sixth lender, privately held CMG Financial, also raised its conforming loan limits to $625,000.
The loan limit increase is well within the likely target for 2022 that the Federal Housing Finance Agency should announce in November, said BTIG analyst Eric Hagen in a note issued on Oct. 5, after
"We see it as a preemptive move ahead of FHFA's upcoming increase in loan limits for 2022 (likely to be announced late November/early December), which we expect will roughly reflect the average nation-wide home price appreciation experienced over the trailing year of 15 to 20%," Hagen said. "The idea is to scoop a little market share and pull earnings forward over the near-term, enabled by the ability to hedge pipeline risk in the TBA market, and eventually deliver loans to the enterprises once the new limits take effect."
Rising rates could be another factor driving these nonbank lenders to make the change.
In a rising interest rate environment, many lenders reduce pricing in order to maintain volume. It is too early for these changes in the conforming limits to be reflected in the Mortgage Bankers Association's Mortgage Credit Availability Index. However, in general, credit has been loosening in recent months, including by 1.5% according to September's MCAI.
"It's of course a safe bet that FHFA will raise loan limits in November since it is written into law under [
The MBA's September origination forecast has total volume shrinking from nearly $1.1 trillion in each of the first two quarters of this year, to $915 billion in the third quarter and $679 billion in the fourth.
Higher conforming limits for the rest of 2021, at least in the short term, could come at a "modest expense" to prime jumbo mortgage lenders, Hagen continued. However, in recent weeks, an inversion in pricing is taking place, according to data from Black Knight's Optimal Blue product and pricing engine. Since Aug. 9, with the exception of Sept. 15 and 16, 30-year jumbo mortgages have had a lower average interest rate than their conforming counterparts.
Few first-time home buyers, however, are jumbo mortgage customers.
"We want to help alleviate some of the barriers to entry and heavy burden that comes with ever-increasing home prices and continues to push the dream of homeownership further away from reach for many first-time buyers," Bill Dallas, Finance of America Mortgage's president, said in a press release. "Increasing the estimated maximum loan amount on our conforming loans gives purchase and refinance borrowers expanded access to mortgage credit at lower rates."
Rocket, FOA and Homepoint said they are doing this for all channels.
Homepoint’s primary focus is wholesale originations, with that channel contributing $18.4 billion of its annual production, versus $5.7 billion for correspondent and $1.4 billion for consumer direct.
"Considering the significant appreciation we're seeing in home prices throughout the country, we wanted to move quickly to support this market so that our mortgage broker partners can be at the forefront of providing greater housing affordability to borrowers in their communities," said Phil Shoemaker, president of originations at Homepoint. "As homebuyers aim to take advantage of rates that are still historically low, before the FHFA determines and announces what its 2022 limits will be, we took this step to ensure that their best financial options are available through mortgage brokers."
