Industry to FHFA: You don't have the authority to cut loan sizes

by Ryan Smith19 Sep 2013

The president of a housing industry group is challenging a federal regulator’s authority to slash the maximum loan amounts for Fannie Mae and Freddie Mac.

The Federal Housing Finance Administration announced last week that it was considering a reduction in the size of mortgages that could be backed by Fannie and Freddie, which were placed under FHFA 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.

On Tuesday, however, National Association of Realtors President Gary Thomas questioned FHFA’s authority to reduce the loan limits. 

“You have not yet made public your legal theory for overriding the statutory prohibition against reducing conforming loan limits, but we have serious legal questions about whether you have this authority,” Thomas wrote in a Tuesday letter to FHFA Acting Director Ed DeMarco.

According to Thomas, the NAR believes that Congress prohibited FHFA from unilaterally slashing Fannie and Freddie Loan Limits by the passage of the Housing and Economic Recovery Act of 2008 (HERA).

“If you had the authority to ignore the prohibition against reducing loan limits, what would prevent you from making other fundamental changes?” Thomas wrote. “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.”

Thomas also expressed concern that reducing the loan limits could stall prospective homeowners in more expensive markets. 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.”

“As you will recallfrom our earlier efforts that resulted inthe existing authority for higher limits for these areas, we believe it is only fair to adjust the limits to reflect the higher costs of markets such as many of those in California and in the urban corridor from Washington to Boston,” Thomas wrote.“Without higher limitsin these areas,many hard-working,middle income families will be denied homeownershipsimply because they happen to reside in an area of high home prices.”

Thomas insisted that any change to the loan limits should come as a result of public debate.

“In light of the harm it would cause to the housing and mortgage markets, the economy as a whole, and homebuyers, we urge you to resist using general conservatorship powers to override the congressional policy that loan limits not be reduced,” he wrote.“If you remain determined to amend FHFA policy and lower the loan limits, we believe you should proceed through notice and comment rulemaking to give all interested parties, including Members of Congress, an opportunity to fully explain their legal and policy objections.”


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