Don't mess around with loan limits, House warns FHFA

by Ryan Smith11 Oct 2013

A bipartisan group of 66 members of the House of Representatives has signed a letter to the head of the Federal Housing Finance Agency questioning the agency’s ability to lower maximum loan amounts for Fannie Mae and Freddie Mac.

The maximum limit for loans backed by Fannie and Freddie is currently $417,000 in much of the country, but ranges up to $625,500 in more expensive areas. FHFA announced last month that it was considering a reduction in the size of the loans that could be backed by the mortgage giants, which were placed under the agency’s conservatorship in 2008 after nearly collapsing in the financial meltdown.

“FHFA has been analyzing approaches for reducing Fannie Mae and Freddie Mac loan limits across the country, and any such change would be announced with adequate advance notice for implementation on Jan. 1," the regulator said in a statement Sept. 9.

However, the signatories of the Thursday congressional letter, sent to acting FHFA Director Edward DeMarco, said reducing the loan limits would throw a wrench into the housing recovery and leave many prospective homeowners out in the cold.

“Such action by a single regulator would serve only to further tighten credit availability and thereby erode progress in our fragile housing recovery,” the letter stated. “Currently, homeownership rates are at an historic 18-year low. Mortgage credit is virtually nonexistent for middle class Americans with less than stellar credit. Unless borrowers have a credit score of 760, conventional mortgage financing will simply be out of reach.
“Moreover, housing is the cornerstone of our economy, and arbitrary regulatory reduction of the conforming loan limit will further disrupt our overall economic recovery.”

The House members also questioned FHFA’s authority to reduce the loan limits.

“Congress did not give FHFA the authority to reduce the loan limits. In fact, we included language in statute explicitly stating that the loan limits could not be reduced,” said Rep. Gary G. Miller (R-Calif.). “…Housing prices are on the rise, but lowering the loan limits could put the housing market’s fragile recovery at risk. This is not consistent with FHFA’s role as conservator. Lowering the limits would place taxpayers at greater risk due to a decline in home values, ultimately harming (Fannie and Freddie’s) financial positions.”

The move to reduce loan limits has also attracted the ire of the private sector.

“If you had the authority to ignore the prohibition against reducing loan limits, what would prevent you from making other fundamental changes?” National Association of Realtors President Gary Thomas wrote to DeMarco last month. “We believe Congress did not intend to allow you to make any fundamental changes to the statutory structure of the organizations, other than those compelled by the nature and goals of the conservatorship.”



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