WASHINGTON – Today the Department of Housing and Urban Development (HUD) announced that it will implement new FHA single-family loan limits on January 1, 2014, as specified by the Housing and Economic Recovery Act of 2008 (HERA). Read FHA’s mortgagee letter detailing the agency’s new loan limits.

“As the housing market continues its recovery, it is important for FHA to evaluate the role we need to play,” said FHA Commissioner Carol Galante. “Implementing lower loan limits is an important and appropriate step as private capital returns to portions of the market and enables FHA to concentrate on those borrowers that are still underserved.”

The current standard loan limit for areas where housing costs are relatively low will remain unchanged at $271,050. The new national-ceiling loan limit for the very highest cost areas will be reduced from $729,750 to $625,500. Areas are eligible for FHA loan limits above the national standard limit, and up to the national ceiling level, based on median area home prices. Additional information and loan limit adjustments for two-, three-, and four-unit properties, and in Special Exception Areas, are noted in FHA’s mortgagee letter. An attachment to the Mortgagee Letter provides information on which counties are eligible for loan limits above the national standard. Borrowers with existing FHA insured mortgages may continue to utilize FHA’s Streamline refinance program regardless of their loan balance. The changes announced today are effective for case number assignments between January 1, 2014, and December 31, 2014.

Full mortgagee letter HERE. (hide)

MBS are undergoing a watered-down version of a short squeeze at the moment. Whereas they hadn't been too popular compared to Treasuries in recent weeks, the 'not-too-crazy' Employment data this morning keeps risk of December tapering fairly minimal (some would debate this). This in turn keeps liquidity as high as it can be during a very illiquid time of year, and helps MBS relative to Treasuries.

As hinted at, some market participants see today's data as suggesting a higher likelihood of tapering. In that case, the outperformance doesn't make as much sense. Whatever the case, there is solid demand for MBS from accounts other than the Fed for the first time in several sessions. Those who had been betting against mortgages are being forced back in, and any accounts that waited to do this until this afternoon are now looking at a bit higher level of urgency. That's reflected in the late-day price spike, but unfortunately, more indicative of tactical considerations as opposed to long term strategy.

Fannie 4.0s are now up an impressive 13 ticks to 103-26 while Treasuries are still hanging around unchanged levels with 10yr yields at 2.8571 (hide)