Plans to Reduce Conforming Loan Limits Under Heavy Fire from Industry Groups, Congress
Pressure appears to be building on the
Federal Housing Finance Agency's (FHFA) acting director to back down or at
least delay an intended reduction in conforming loan limits for Fannie Mae and
Freddie Mac (the GSEs). In August Edward
J. DeMarco announced plans to scale back existing limits on the size of
conventional loans that can be purchased by the GSEs. The current limit is $417,000 with exceptions
for counties deemed to have high cost housing where the limit is as high as $625,000. DeMarco
proposed a gradual reduction as one mechanism to encourage the return of
private money to the mortgage market and to reduce the government's housing
Industry groups began almost immediately
to question both the wisdom of a reduction and the authority of DeMarco to take
the action without congressional authority.
It now appears they have unified to press their demands and have picked
up some congressional support.
On Tuesday, 15 industry groups including
the National Associations of Home Builders (NAHB), Realtors (NAR), Credit Union
Associations, and the Land Title Association, Credit Union National
Association, and the Mortgage Bankers Association sent a letter to DeMarco
stating that "a reduction of the conventional
conforming loan limit to $400,000 would have impacted nearly 154,000 borrowers
in 2012, many of whom were in markets still in recovery." The group said that many of these borrowers
could not have qualified for loans under the tighter private market standards. "These
conditions leave the American dream out of reach for many families. Lowering
the loan limits further restricts liquidity and makes mortgages more expensive
for households nationwide."
The letter also argues that with several
sets of regulations promulgated by the Consumer Financial Protection Bureau
(CFPB) as part of Dodd-Frank requirements already slated to begin in January,
changing loan limits at this time would further complicate the lending process.
The signers "believe such changes at this time would
have a very disruptive impact on the availability of affordable housing credit,
on our housing recovery and our economy as a whole."
The legal authority of FHFA
to 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 from
"If the change in such house price index during the most recent
12-month or 4-quarter period ending before the time of determining such annual
adjustment is a decrease, then no
adjustment shall be made for the next year, and the next
adjustment shall take into account prior declines in the house price index, so
that any adjustment shall reflect the net change in the house price index since
the last adjustment. Declines in the house price index shall be accumulated and
then reduce increases until subsequent increases exceed prior declines."
industry letter follows at least two sent independently by members of the
coalition. In mid-September NAR sent a letter to
DeMarco questioning a number of FHFA actions and in particular the legal
authority of FHFA to lower the loan limits.
These were the legal concerns reiterated on Tuesday.
On October 4 MBA President David Stevens
joined in with a letter outlining similar concerns about exacerbating existing burdens
from implementation of Dodd-Frank rules.
The letter warned of the danger that additional changes and uncertainty "run
the risk of reversing the progress made thus far in the housing recovery."
Stevens, however, did not demand that
loan limits remain static but instead urged FHFA to monitor the impact of the
new CFPB rules and reassess conditions six months after full implementation "to
determine the industry's capacity to meet credit needs in the core of the
mortgage market, particularly the segments that could be impacted by any
reduction in loan limits."
Next came a letter to DeMarco signed by
a non-partisan group of 13 senators lead by Senator Bob Menendez (D-NJ) and Johnny
Isakson (R-GA). The group urged FHFA to
leave any changes in loan limits to Congress, and asked FHFA to demonstrate
both their authority for acting unilaterally and an analysis of the potential impact
on housing markets and the economy. According to NAHB, two
congresspersons, Gary Miller (R-CA) and Carolyn Maloney (D-NY) were preparing a
similar letter to be sent to DeMarco this week.
The pressure may be working.
According to the Journal the original
plans to change the limits envisioned a January 1, 2014 start date. More recently it appears that any changes
will not go into effect until spring. Perhaps this could be an easy compromise for
the industry; the letter sent Tuesday concludes with the plea, "Please do not further complicate this time by changing the
mortgage loan limits at this time."
The emphasis is theirs.
In addition to those listed above
the Tuesday letter was signed by American Escrow Association, American
Financial Services Association, Asian Real Estate Association of America, Coalition
of US Mortgage Insurers, Community Home Lenders Association, Community Mortgage
Lenders of America, Leading Builders of America, National Association of Hispanic
Real Estate Professionals, and the Realty Alliance