Lending could tighten after loan changes take effect

Mortgage rates dropped again this past week, and mortgage activity continued to decline. Potential homeowners and current borrowers have just a few short weeks before more expensive loans will come under stricter lending requirements.

Starting October 1, Fannie Mae and Freddie Mac will decrease the size of loans they will buy from lenders, forcing many borrowers to obtain more expensive jumbo loans. After raising the limit for single-family home loans to $729,750 in 2008 to help stimulate the economy, the U.S. government will drop the limit back down to $625,500 at the start of October.

USA Today reported that many major banks including Bank of America, Wells Fargo and JPMorgan Chase are no longer accepting new home loan applications so their employees can make sure current applications are closed by the end of the month deadline.

In an interview with the news source, Pamela Liebman, CEO of the Corcoran Group, said many borrowers trying to get approved before the deadline are panicked. Liebman anticipates the loan limit changes will pull many buyers out of the market.

The recent lawsuits brought against 17 major U.S. banks could also have an effect on mortgage lending, Housing Wire reported. Paul Miller from FBR Capital Markets said the lawsuits will drain capital from the banking system, resulting in Americans facing harsher lending restrictions, the news source reported. 

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