FHFA Plan to Lower Loan Limits Challenged by Housing Industry

The National Association of Home Builders (NAHB) and the National Association of REALTORS® objected to the Federal Housing Finance Agency (FHFA) plan to reduce loan limits for mortgage loans sold to or guaranteed by Fannie Mae and Freddie Mac.

In a letter to members of the US House of Representatives, the two trade groups argued that lowering maximum loan amounts would cause "uncertainty and confusion" among mortgage lenders and borrowers.

The FHFA, which oversees Fannie Mae and Freddie Mac, plans to roll back maximum loan amounts for mortgages purchased by Fannie and Freddie. Current conforming loan limits are determined by median home prices within designated metro areas. The loan ceiling for Fannie Mae and Freddie Mac loans is  $417,000 for most areas of the US (for single family homes), but maximum loan amounts can go as high as $625,500 in high-cost  metro areas like New York, Los Angeles and San Francisco. The maximum is set even higher for home loans in Hawaii at $721,050 for single family residences.

As median home prices have dropped since current loan limits were set, the FHFA wants to reduce maximum conforming loan amounts, while the real estate industry wants to see limits remain high.

Government Goal: Increase Private Capital in Mortgage Industry

The FHFA wants to increase private capital in the US mortgage industry and decrease the government's role. Currently, the U.S. government backs or guarantees approximately 90 percent of US home loans. Federal agencies involved in US mortgage lending include the Department of Veterans Affairs (VA Home Loan Guaranty Program) and the Federal Housing Administration (Mutual Mortgage Insurance Program for FHA loans). Fannie Mae and Freddie Mac are federally chartered corporations that buy or guarantee a majority of conforming mortgages in the US. Their purchases of home loans allow mortgage lenders to fund more home loans and increases mortgage availability.

In a recent letter to the FHFA, Gary Thomas, President of the National Association of Realtors® characterized the plan to lower loan limits as " a social policy experiment that risks dampening or reversing the ongoing recovery in  housing market and the economy as a whole."

Housing Industry to FHFA: If it Ain't Broke, Don't Fix It

Rising loan fees charged by Fannie and Freddie are also in question. The NAR is asking that risk-based surcharges be held steady. Every loan that will be sold to Fannie Mae and Freddie Mac has these fees, which are based on the borrower's credit score and other factors. Critics fee increases don't want to add more stress to the housing market recovery, which has persisted in spite of higher mortgage rates, elevated unemployment rates and a shortage of new jobs.

The reluctance of housing industry leaders to change anything affecting housing markets and mortgage lending during a perceived time of fragile economic recovery echoes the Federal Reserve's decision not to reduce its quantitative easing program as was widely expected. The Fed determined  that the economy had not recovered sufficiently to withstand a reduction in the Fed's monthly bond purchasing program that was designed to support lower mortgage rates and other long-term interest rates.

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