The Federal Housing Finance Agency
(FHFA) is inviting public comments on a new proposal to "gradually reduce" loan
limits for mortgages purchased by the two government sponsored enterprises
(GSEs) Freddie Mac and Fannie Mae. The proposal contemplates that the first reduction
would take the maximum loan for a single-family mortgage in most areas of the
country down to $400,000. The press
release from FHFA specifically states that the reduction applies to loans
eligible for GSE purchase (i.e. NOT "conforming loan limit"). It does not
mention loans which the GSEs may guarantee.
The reduction from the current limit of
$417,000 is approximately 4 percent.
FHFA said it will apply the same reduction to current limits for what
are considered "high costs" areas of the country where limits now range up to
$625,500. Under a 4 percent decrease the
maximum upper limit in areas such as metropolitan Washington, DC, the New
York/New Jersey area, and parts of California would become $600,000.
(On December 7 FHA announced it would
keep its lowest loan limit at its current level of $271,050 but would reduce
limits in 650 local higher costs areas.
The highest FHA loan limit in the continental U.S. will drop from
$729,750 to $625,500 on January 1.)
FHFA says that downsizing loan purchase
limits is in line with the its goal to reduce the GSEs' market presence and
complies with President Obama's August 2013 request that lower loan limits be
implemented in an effort to encourage the return of private capital into the
mortgage markets. The proposed
reductions would modestly reduce Fannie Mae's
and Freddie Mac's business
at the high
end of the market, encourage more private funds, and limit
taxpayer exposure to losses.
FHFA says the contemplated action is a plan and
not a final decision and the agency has concluded that inviting public
input on potential
operational and technical issues associated with the planned decrease in loan purchase
limits would benefit any
final decision. Input received will be carefully reviewed before FHFA decides
whether and how to proceed
with the planned
approach to Freddie Mac's
and Fannie Mae's loan purchase limits. No final decision on loan purchase
limits will be
made until the comments
and, in any event, the changes
contemplated in this Request
for Input will not affect loans
originated before October
specifically inviting comments on whether six months'
advance notice of the change is adequate,
whether it is preferable for FHFA
to announce a multi-year schedule of decreases,
and to what date any future loan purchase limit
reductions should be tied.
An analysis of
the impact of planned reductions and questions that interested parties are invited
to answer can be found here. The deadline for public comment is March 20,