FHFA Invites Comments on Maximum GSE Purchase Limits

The Federal Housing Finance Agencyrn(FHFA) is inviting public comments on a new proposal to “gradually reduce” loanrnlimits for mortgages purchased by the two government sponsored enterprisesrn(GSEs) Freddie Mac and Fannie Mae.   The proposal contemplates that the first reductionrnwould take the maximum loan for a single-family mortgage in most areas of therncountry down to $400,000.  The pressrnrelease from FHFA specifically states that the reduction applies to loansrneligible for GSE purchase (i.e. NOT “conforming loan limit”).  It does notrnmention loans which the GSEs may guarantee.</p

The reduction from the current limit ofrn$417,000 is approximately 4 percent. rnFHFA said it will apply the same reduction to current limits for whatrnare considered “high costs” areas of the country where limits now range up torn$625,500.  Under a 4 percent decrease thernmaximum upper limit in areas such as metropolitan Washington, DC, the NewrnYork/New Jersey area, and parts of California would become $600,000. </p

(On December 7 FHA announced it wouldrnkeep its lowest loan limit at its current level of $271,050 but would reducernlimits in 650 local higher costs areas. rnThe highest FHA loan limit in the continental U.S. will drop fromrn$729,750 to $625,500 on January 1.)  </p

FHFA says that downsizing loan purchasernlimits is in line with the its goal to reduce the GSEs’ market presence andrncomplies with President Obama’s August 2013 request that lower loan limits bernimplemented in an effort to encourage the return of private capital into thernmortgage markets.  The proposedrnreductions would modestly reduce Fannie Mae’srnand Freddie Mac’s businessrnat the highrnend of the market, encourage more private funds, and limitrntaxpayer exposure to losses.</p

FHFA says the contemplated action is a plan andrnnot a final decision and the agency has concluded that inviting publicrninput on potentialrnoperational and technical issues associated with the planned decrease in loan purchasernlimits would benefit anyrnfinal decision. Input received will be carefully reviewed before FHFA decidesrnwhether and how to proceedrnwith the plannedrnapproach to Freddie Mac’srnand Fannie Mae’s loan purchase limits. No final decision on loan purchasernlimits will bernmade until the commentsrnare reviewedrnand, in any event, the changesrncontemplated in this Requestrnfor Input will not affect loansrnoriginated before Octoberrn1, 2014.</p

FHFA isrnspecifically inviting comments on whether six months’rnadvance notice of the change is adequate,rnwhether it is preferable for FHFArnto announce a multi-year schedule of decreases,rnand to what date any future loan purchase limitrnreductions should be tied.</p

An analysis ofrnthe impact of planned reductions and questions that interested parties are invitedrnto answer can be found here.  The deadline for public comment is March 20,rn2014.</p

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