The Illinois Association of Realtors (IAR) yesterday released new data that shows mortgage loans above the current conforming limit have not led to an increase in foreclosures in the Chicagoland region as some have previously thought. The data provides evidence to support those advocating for an increase in conventional loan limits in select areas of northern Illinois.
Conducted by RCF Economic and Financial Consulting, the study analyzed mortgages that closed between January 2008 and December 2009, and those that subsequently foreclosed through December 2010 for the seven-county Chicagoland region, including Cook, DuPage, Kane, Kendall, Lake, McHenry and Will Counties.
Findings indicate that increasing the current government-sponsored enterprises (GSE) mortgage limits—currently set at $417,000—for select areas within the seven-county region would have little impact on overall rates of foreclosure which perceivably translate into an increased risk to mortgage investors. Instead, raising the conforming lending limits in six of the seven counties would help increase liquidity and allow a greater number of qualified homebuyers to enter the market for higher-priced homes, ultimately benefiting both the housing market and larger economy.
“IAR has long advocated for raising local loan limits, which have yet to be increased despite high housing costs in Chicago and the surrounding suburbs,” said Sheryl Grider Whitehurst, president of the Illinois Association of Realtors. “The current limits that are set by federal policy simply aren’t in line with the price of our local housing stock. This new data should effectively diminish concern from decision makers that higher loan limits equate to an increase in foreclosures.”
Based on a methodology proposed by the IAR, the data shows that the GSE loan limit could be raised to $729,750—the current high-cost area loan limit in the contiguous United States—in Cook, DuPage and Lake Counties without increasing the foreclosure rate. In Kendall, McHenry and Will Counties, the loan limit increase would be less due to lower median home prices, while the data shows that Kane County limits should remain the same.
The study found that 98.3 percent (15,384) of all foreclosures in the region were from loans at or below $417,000, while mortgages above that amount only represented 1.7 percent (259) of foreclosures. In the combined seven-county Chicagoland area, the highest foreclosure rate is for mortgages between $200,000 and $300,000. The foreclosure rates typically decrease for higher-valued mortgages.
“Our mission is to ensure a strong, safe and efficient financing environment for homeownership, including access to mortgage financing for segments of the population that have demonstrated the ability to sustain homeownership,” added Whitehurst.
The Federal Housing Finance Agency has set higher lending limits in other areas of the country—including counties in Ohio, Maryland, West Virginia and New Mexico—but the loan limits have not been raised in Illinois. In Baltimore County, Maryland, for example, the conforming loan limit is $560,000 yet, according to recent estimates from the U.S. Census American Community Survey, the average median home value and household income are less than in DuPage County.
“The current lending limit in Illinois is both a barrier to home seekers and a burden to many current homeowners,” said Whitehurst. “There are thousands of Illinoisans who want to purchase a home priced at more than $417,000, but are pushed out of the market because they can’t take on the higher interest rates that come with jumbo loans. And for current homeowners with non-conforming loans, the limits restrict them from refinancing into a more affordable lending product.”