As I predicted a couple of months ago, the maximum conforming loan limits for mortgages acquired by Fannie Mae and Freddie Mac is staying the same, at least for now.
The Federal Housing Finance Agency announced in late November that the maximum loan limits for Fannie and Freddie will remain at $417,000 for most areas of the country and up to $625,500 in more expensive markets (i.e. Silicon Valley.) The announcement comes after months of industry protest over Acting FHFA Director Edward DeMarco’s announcement that he would lower the loan limits. (FHFA is the Federal Housing Finance Agency, which oversees Fannie Mae, Freddie Mac, and HUD.)
FHFA could still lower the loan limits in the middle of next year. DeMarco said last month that any change in the loan limits wouldn’t come until spring of 2014 at the earliest, and
that the agency would give at least six months’ notice before making any changes.
But many real estate professionals don’t want to see the limits lowered at all. More than a dozen mortgage and housing industry groups have gone on record opposing the plan, and several sent an Oct. 8 joint letter to DeMarco urging him to abandon the idea.
“We 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. Not only is lowering loan limits bad for housing, we question to what extent FHFA’s authority would allow for such a change,” the letter stated.
Members of Congress agree. Sixty-six House members signed an Oct. 10 letter to DeMarco slamming the plan.
“Such action by a single regulator would serve only to further tighten credit availability and thereby erode progress in our fragile housing recovery,” the letter stated. “Currently, homeownership rates are at an historic 18-year low. Mortgage credit is virtually nonexistent for middle class Americans with less than stellar credit.”
So Fannie / Freddie loan limits are safe – for now. However, on December 5, HUD announced that the high cost maximum loan amount for FHA loans would decline beginning January 1, 2014 from $729,750 to $625,000. Nationwide this will only impact about ½ of 1% of FHA loans, but in the Silicon Valley this could have a fairly dramatic impact. FHA provides loans to homebuyers when they lack the down payment or stellar credit needed for conventional lending.
The bottom line is that – as I have written before – the government either purchases or insures over 95% of the mortgage loans made in the country today, and everyone recognizes that has to change at some point. Further, the Federal Reserve, through mortgage-backed-security purchases, ultimately provides the funding for the vast majority of mortgage lending in the country, too.
Default rates on loans made since 2009 are very close to -0- (except for low-down-payment FHA loans) and the fees charged by Fannie Mae and Freddie Mac, and the insurance premiums charged by HUD for FHA loans more than pay for the losses they experience today. In other words, there is now little risk and little or no cost to the government to providing the backstop to mortgage lending in America.
Consequently, most members of Congress believe that it is time for private enterprise to step up and take on the function of mortgage lending. This is happening, but very slowly. Reducing FHA loan limits today, and Fannie / Freddie loan limits perhaps in the spring or summer of 2014, should accelerate the privatization of the industry.
My name is Casey Fleming, and I originate mortgage loans throughout California. I am based in Silicon Valley.
(408) 348-3442 / firstname.lastname@example.org / www.loanguide.com
NMLS 344275 / BRE 00889527