Will Conforming Loan Limits Decrease? (An Update)

Casey Fleming

A couple of weeks ago I wrote that Fannie Mae / Freddie Mac conforming loan limits were likely to be reduced (for the first time in history) by the end of this year as a means to reduce the market share that Fannie / Freddie currently have of mortgage originations nationwide.  The problem, as I explained, was that with a market share over 90% of all originations, and taxpayers basically back-stopping conforming loans with an implicit guarantee, we as taxpayers were taking too much risk, and loan limits would have to go down.

Ed DeMarco
Ed DeMarco, is the Chief of the FHFA

There are political battles to be fought first, however, as it isn’t clear anymore exactly who has the authority to change the limits.  It used to be that Fannie / Freddie (which were private-sector organizations) would propose the changes, Congress (involved because of the implicit guarantee) would bless the plan, and Fannie/Freddie would announce the new limits.  The announcement was historically made at the end of November, and the changes went into effect January 1.

Congress at work
Congress Objects to Reducing the Conforming Loan Limit. Or They Are Objectionable. I Forget Which.

But now the Federal Housing Finance Agency is responsible for oversight of Fannie / Freddie which are now owned by the U.S. Government.  Yesterday (Oct. 24, 2013) they announced that they would roll back conforming loan limits, but the timing and procedures would be different.  Some members of Congress objected, however, as they believe they are the ones that should make that decision.  Frankly, this is new territory and it isn’t clear who has the authority, at least as far as I know.

Anyway, we’ll see what happens but any changes to the conforming loan limit won’t take place for at least six months, although the high-balance conforming loan limit could still expire on December 31.

My name is Casey Fleming and I originate mortgage loans in California.  I am based in Silicon Valley.
(408) 348-3442 / loanguide@outlook.com / http://www.loanguide.com
NMLS 344375 / BRE 00889527

Here’s the full article from National Mortgage News:


FHFA Will Reduce GSE Loan Limits and Hike G-Fees

OCT 24, 2013 5:38pm ET

Federal Housing Finance Agency acting director Edward DeMarco signaled that he plans to reduce the GSE loan limits and he will reveal the changes in November.

“We expect to give market participants at least six months’ notice of any change. Any reduction would be across the board, not just in some parts of the country,” he said Thursday.

DeMarco also said he plans to continue making gradual increases in the guarantee fees that Fannie Mae and Freddie Mac charge lenders.

The current 50 basis point g-fee has doubled since Fannie and Freddie were placed in conservatorship in 2008.

Lowering the loan limits is “one of the most direct ways” to increase private sector participation in the mortgage market and “reduce taxpayer exposure,” he said at a Zillow/Bipartisan Policy Center conference in Washington.

Members of the House and Senate contend that the FHFA does not have the authority to reduce the loan limits without congressional approval.

But DeMarco maintains his actions are consistent with his responsibilities as a conservator when it comes to gradually shrinking the GSEs’ dominant presence in the mortgage market.

Actually, lowering the loan limits is the most direct way to skew and depress home prices.

Conforming loan limits used to (roughly) follow housing prices
Conforming Loan Limits vs Housing Prices Over Time