Borrowers Pay Lower Effective Interest Rates for Large Conventional Mortgage Loans

In response to a congressional request, GAO determined: (1) what proportion of conventional mortgage loans exceeded the statutory conforming loan limit of $108,300 in 1983; (2) how interest rates and fees paid by borrowers for conventional loans which exceeded the 1983 limit differed from those paid by borrowers for conventional conforming loans; and (3) what income a hypothetical borrower would need to qualify for the maximum conforming loan in various high-cost housing markets if the conforming limit were raised as proposed in H.R. 3420.

GAO found that only about 8.3 percent of all conventional loans in 1983 exceeded the 1983 conforming limit of $108,300. Borrowers who received these large loans were charged lower effective interest rates than those whose loans fell below the conforming limit. In addition, if the conforming limit were raised in high-cost areas as proposed in H.R. 3420, household incomes of $60,000 to $80,500 would be needed to qualify for mortgages between the 1984 conforming limit of $114,000 and the new limits for high-cost housing areas. The highest conforming limit under the proposed law would be about $152,000.