National Association of Realtors® (NAR) sent a strongly worded letter to Edward J. DeMarco, Acting
Director of the Federal Housing Finance Agency yesterday, directed at several
issues impacting the cost and potential availability of credit. A particular target of the letter is
DeMarco's rumored intentions to lower loan limits for Fannie Mae and Freddie
Mac (GSE) loans. Gary Thomas, NAR
president said the letter was intended "to raise concerns about continued attempts to increase
the cost and reduce
access to conventional mortgages for
an ever increasing
amount of borrowers." He specifically alluded to a September 8
article in the Wall Street Journal
which stated that DeMarco would reduce the conforming loan limit,
currently set at $417,000, notwithstanding the statutory prohibitions against
such a change.
noted that DeMarco had not yet made public any legal theory for overriding the
statutory prohibition but doubted that he had the authority. Congress sets the loan limits and adjusts
them annually and after an effort by the FHFA predecessor agency OFHEO to
unilaterally reduce limits in 2007 Congress made its policy against such
reductions permanent in the Housing and Economic Recovery Act of 2008
letter acknowledges the broad authority granted FHFA as conservator of the GSEs
but said NAR believes it is required to exercise it within the statutory framework established by the
GSE's Charter Acts. If allowed to exceed the authority in the area
of loan limits, Thomas asks, what would prevent FHFA from making other
fundamental changes, a litany of which he outlined. "Aside from our apparent
disagreement over whether you have
legal authority to reduce loan
limits or make other fundamental changes to
of the Enterprises, we believe that a
decision to override congressional intent made clear by the specific prohibitions in
the Charter Acts, cited above, is
bad policy," the letter says.
private lending has been returning, it remains limited with tough credit
standards attached, Thomas said. An
limits in the hope it
will encourage more private sector lending is a
social policy experiment that risks harming the recovery and denying
homeownership to many credit-worthy borrowers who cannot meet the extremely
risk averse standards prevailing in the jumbo market.
limits, Thomas said, will hit first-time
homebuyers the hardest. He also expressed concern about the
impact lower limits would have on high-cost markets such as many California
cities, Washington, and Boston. "Without
higher limits in these
areas, many hard-working, middle
income families will be denied homeownership
simply because they happen to
reside in an area of high
Lowering limits also would also
create confusion and uncertainty
for potential borrowers and
lenders at a time when there is already
turbulence in the market because of the new regulations regarding "ability
to repay" requirements and the continued revisions to the definition of
Qualified Residential Mortgage.
questioned plans in FHFA's Strategic Plan for 2013-2017 to raise guarantee fees
to the level that other market participants would
charge to assume the credit risk." This assumes, Thomas said, that if the GSEs
continue to raise fees then pricing will be attractive enough to draw private
money back into the mortgage market.
However a July report from FHFA's Inspector General raised questions and
concerns about this policy and recommended that FHFA "develop definitions and
performance measures that
would permit Congress, financial
market participants, and
the public to assess the progress
and effectiveness of
the supposition that higher costs for
GSE loans will help
return the private sector to
market runs contrary to history: In the
1990s the GSEs had more than a
60% share of the market, FHA and other federal
programs had approximately
a 20% share, and the private
sector had less than a 20% share.
There may be many other factors keeping
purely private sector lending
at current low levels Thomas said, pointing to some of the
Dodd-Frank regulations and investors' fears over litigation. There are also concerns that higher fees
could drive more borrowers to FHA rather than enticing private money back into
asked DeMarco to consider removing the adverse market fees put in place in 2008
because of deteriorating market conditions.
Noting the many improvements in market indicators in recent months he
said that NAR believes that there is no
longer a factual basis for imposing
an adverse market fee on
all markets and it should be rescinded.
Finally Thomas raised the issue of the revisions to the agreement
between Treasury and the GSEs which now requires the latter to pay all but a
small amount of their incomes to Treasury.
The policy, he said, may make the transition to a replacement structure
for the GSEs much more difficult by removing capital that could be used for
reserves to meet GSE obligations as they are wound down and to capitalize a
backstop ahead of taxpayer support.
Thomas concluded saying NAR urges FHFA to "resist using general conservatorship powers to
override the congressional policy that loan
limits not be reduced.
If you remain determined to amend FHFA policy and lower the loan limits,
we believe you should
notice and comment rulemaking to
give all interested parties, including
Members of Congress,
an opportunity to fully explain their
legal and policy objections.
We also urge FHFA to take the OIG recommendation to
heart and establish definitions and measurement
standards for its policy of increasing fees to entice the private sector back into the mortgage market."