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NAR Objects to DeMarco's Rumored Loan Limit Changes

by devteam September 21st, 2013 | Share

ThernNational Association of Realtors® (NAR) sent a strongly worded letter to Edward J. DeMarco, ActingrnDirector of the Federal Housing Finance Agency yesterday, directed at severalrnissues impacting the cost and potential availability of credit.  A particular target of the letter isrnDeMarco’s rumored intentions to lower loan limits for Fannie Mae and FreddiernMac (GSE) loans.  Gary Thomas, NARrnpresident said the letter was intended “to raise concerns about continued attempts to increasernthe cost and reducernaccess to conventional mortgages forrnan ever increasingrnamount of borrowers.”  He specifically alluded to a September 8rnarticle in the Wall Street Journal</iwhich stated that DeMarco would reduce the conforming loan limit,rncurrently set at $417,000, notwithstanding the statutory prohibitions againstrnsuch a change.</p

Thomasrnnoted that DeMarco had not yet made public any legal theory for overriding thernstatutory prohibition but doubted that he had the authority.  Congress sets the loan limits and adjustsrnthem annually and after an effort by the FHFA predecessor agency OFHEO tornunilaterally reduce limits in 2007 Congress made its policy against suchrnreductions permanent in the Housing and Economic Recovery Act of 2008rn(HERA).   </p

Thomas’srnletter acknowledges the broad authority granted FHFA as conservator of the GSEsrnbut said NAR believes it is required to exercise it within the statutory framework established by thernGSE’s Charter Acts.  If allowed to exceed the authority in the arearnof loan limits, Thomas asks, what would prevent FHFA from making otherrnfundamental changes, a litany of which he outlined.  “Aside from our apparentrndisagreement over whether you havernlegal authority to reduce loanrnlimits or make other fundamental changes tornthe missionrnof the Enterprises, we believe that arndecision to override congressional intent made clear by the specific prohibitions inrnthe Charter Acts, cited above, is<bbad policy,” the letter says.</p

While<bprivate lending has been returning, it remains limited with tough creditrnstandards attached, Thomas said.  Anrnarbitrary reductionrnin existingrnlimits in the hope itrnwill encourage more private sector lending is arnsocial policy experiment that risks harming the recovery and denyingrnhomeownership to many credit-worthy borrowers who cannot meet the extremelyrnrisk averse standards prevailing in the jumbo market.  </p

Loweringrnlimits, Thomas said, will hit first-timernhomebuyers the hardest. He also expressed concern about thernimpact lower limits would have on high-cost markets such as many Californiarncities, Washington, and Boston.  “Withoutrnhigher limits in thesernareas, many hard-working, middlernincome families will be denied homeownershiprnsimply because they happen tornreside in an area of highrnhome prices.”</p

Lowering limits also would alsorncreate confusion and uncertaintyrnfor potential borrowers andrnlenders at a time when there is alreadyrnturbulence in the market because of the new regulations regarding “abilityrnto repay” requirements and the continued revisions to the definition ofrnQualified Residential Mortgage. </p

Thomas alsornquestioned plans in FHFA’s Strategic Plan for 2013-2017 to raise guarantee fees</b"closerrnto the level that other market participants wouldrncharge to assume the credit risk."  This assumes, Thomas said, that if the GSEsrncontinue to raise fees then pricing will be attractive enough to draw privaternmoney back into the mortgage market. rnHowever a July report from FHFA's Inspector General raised questions andrnconcerns about this policy and recommended that FHFA "develop definitions andrnperformance measures thatrnwould permit Congress, financialrnmarket participants, andrnthe public to assess the progressrnand effectiveness ofrnFHFA's initiative." </p

Thomas saidrnthe supposition that higher costs forrnGSE loans will helprnreturn the private sector tornthe mortgagernmarket runs contrary to history:  In thern1990s the GSEs had more than arn60% share of the market, FHA and other federalrnprograms had approximatelyrna 20% share, and the privaternsector had less than a 20% share.</p

There may be many other factors keepingrnpurely private sector lendingrnat current low levels Thomas said, pointing to some of thernDodd-Frank regulations and investors’ fears over litigation.  There are also concerns that higher feesrncould drive more borrowers to FHA rather than enticing private money back intornthe market.</p

Thomas alsornasked DeMarco to consider removing the adverse market fees put in place in 2008rnbecause of deteriorating market conditions. rnNoting the many improvements in market indicators in recent months hernsaid that NAR believes that there is nornlonger a factual basis for imposingrnan adverse market fee onrnallrnmortgages inrnall markets and it should be rescinded. </p

Finally Thomas raised the issue of the revisions to the agreementrnbetween Treasury and the GSEs which now requires the latter to pay all but arnsmall amount of their incomes to Treasury. rnThe policy, he said, may make the transition to a replacement structurernfor the GSEs much more difficult by removing capital that could be used forrnreserves to meet GSE obligations as they are wound down and to capitalize arnbackstop ahead of taxpayer support. </p

Thomas concluded saying NAR urges FHFA to “resist using general conservatorship powers to<boverride the congressional policy that loanrnlimits not be reduced.rnIf you remain determined to amend FHFA policy and lower the loan limits,rnwe believe you shouldrnproceed throughrnnotice and comment rulemaking torngive all interested parties, includingrnMembers of Congress,rnan opportunity to fully explain theirrnlegal and policy objections.</p

We also urge FHFA to take the OIG recommendation tornheart and establish definitions and measurementrnstandards for its policy of increasing fees to entice the private sector back into the mortgage market.”

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About the Author

devteam

Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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