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Plans to Reduce Conforming Loan Limits Under Heavy Fire from Industry Groups, Congress
Pressure appears to be building on thernFederal Housing Finance Agency’s (FHFA) acting director to back down or atrnleast delay an intended reduction in conforming loan limits for Fannie Mae andrnFreddie Mac (the GSEs). In August EdwardrnJ. DeMarco announced plans to scale back existing limits on the size ofrnconventional loans that can be purchased by the GSEs. The current limit is $417,000 with exceptionsrnfor counties deemed to have high cost housing where the limit is as high as $625,000. DeMarcornproposed a gradual reduction as one mechanism to encourage the return ofrnprivate money to the mortgage market and to reduce the government’s housingrnfinance footprint.</p
Industry groups began almost immediatelyrnto question both the wisdom of a reduction and the authority of DeMarco to takernthe action without congressional authority. rnIt now appears they have unified to press their demands and have pickedrnup some congressional support.</p
On Tuesday, 15 industry groups includingrnthe National Associations of Home Builders (NAHB), Realtors (NAR), Credit UnionrnAssociations, and the Land Title Association, Credit Union NationalrnAssociation, and the Mortgage Bankers Association sent a letter to DeMarcornstating that “a reduction of the conventionalrnconforming loan limit to $400,000 would have impacted nearly 154,000 borrowersrnin 2012, many of whom were in markets still in recovery.” The group said that many of these borrowersrncould not have qualified for loans under the tighter private market standards. “Thesernconditions leave the American dream out of reach for many families. Loweringrnthe loan limits further restricts liquidity and makes mortgages more expensivernfor households nationwide.”</p
The letter also argues that with severalrnsets of regulations promulgated by the Consumer Financial Protection Bureaurn(CFPB) as part of Dodd-Frank requirements already slated to begin in January,rnchanging loan limits at this time would further complicate the lending process.rnThe signers “believe such changes at this time wouldrnhave a very disruptive impact on the availability of affordable housing credit,rnon our housing recovery and our economy as a whole.”</p
The legal authority of FHFA</bto lower the loan limits without congressional action is also challenged. The authors cite language in the Housing and Economic Recovery Act of 2008 (HERA) which it says specifically prohibits the limits fromrndecreasing. </p
“If the change in such house price index during the most recentrn12-month or 4-quarter period ending before the time of determining such annualrnadjustment is a decrease, then nornadjustment shall be made for the next year, and the nextrnadjustment shall take into account prior declines in the house price index, sornthat any adjustment shall reflect the net change in the house price index sincernthe last adjustment. Declines in the house price index shall be accumulated andrnthen reduce increases until subsequent increases exceed prior declines.” </p
Thernindustry letter follows at least two sent independently by members of therncoalition. In mid-September NAR sent a letter tornDeMarco questioning a number of FHFA actions and in particular the legalrnauthority of FHFA to lower the loan limits. rnThese were the legal concerns reiterated on Tuesday. </p
On October 4 MBA President David Stevensrnjoined in with a letter outlining similar concerns about exacerbating existing burdensrnfrom implementation of Dodd-Frank rules. rnThe letter warned of the danger that additional changes and uncertainty “runrnthe risk of reversing the progress made thus far in the housing recovery.” </p
Stevens, however, did not demand thatrnloan limits remain static but instead urged FHFA to monitor the impact of thernnew CFPB rules and reassess conditions six months after full implementation “torndetermine the industry’s capacity to meet credit needs in the core of thernmortgage market, particularly the segments that could be impacted by anyrnreduction in loan limits.” </p
Next came a letter to DeMarco signed byrna non-partisan group of 13 senators lead by Senator Bob Menendez (D-NJ) and JohnnyrnIsakson (R-GA). The group urged FHFA tornleave any changes in loan limits to Congress, and asked FHFA to demonstraternboth their authority for acting unilaterally and an analysis of the potential impactrnon housing markets and the economy. According to NAHB, tworncongresspersons, Gary Miller (R-CA) and Carolyn Maloney (D-NY) were preparing arnsimilar letter to be sent to DeMarco this week.</p
The pressure may be working. rnAccording to the Journal the originalrnplans to change the limits envisioned a January 1, 2014 start date. More recently it appears that any changesrnwill not go into effect until spring. Perhaps this could be an easy compromise forrnthe industry; the letter sent Tuesday concludes with the plea, “Please do not further complicate this time by changing thernmortgage loan limits at this time.” rnThe emphasis is theirs.</p
In addition to those listed abovernthe Tuesday letter was signed by American Escrow Association, AmericanrnFinancial Services Association, Asian Real Estate Association of America, Coalitionrnof US Mortgage Insurers, Community Home Lenders Association, Community MortgagernLenders of America, Leading Builders of America, National Association of HispanicrnReal Estate Professionals, and the Realty Alliance
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About the Author
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Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.
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