October 24, 2011 (Chris Moore)
The Senate voted 60 to 38 to add an amendment to an existing spending bill that would restore the higher conforming loan limits that had expired on September 30th. The housing industry has been pushing for a restoration of the loan limits claiming the new lower limits could weaken an already struggling housing market.
The amendment was introduced by Senators Johnny Isakson (R-GA) and Robert Menendez (D-NJ) and the bill that the amendment was attached to is expected to be taken up before the end of the year.
Under the Housing and Economic Recovery Act of 2008, the base limit for a loan through either Freddie Mac and Fannie Mae was $417,000, but could rise as high as $729,750 in high cost areas, based upon a formula that allowed loan limits to rise as high as 125 percent of local median prices.
The formula change that took effect on October 1st lowered the formula to 115 percent and capped the loan amount at $625,000. FHA-insured loans would see a similar drop although their lowest limit would be $271,050.
In a study by the National Association of Home Builders, an estimated 3.63 million owner-occupied homes are currently priced above the conforming loan limit. If the rule is allowed to take effect, an additional 1.38 million owner-occupied homes would be placed above the limit. That would leave a total of just over 5 million homes that would no longer be eligible for financing through either GSE.
FHA-insured loans fare worse. There are currently 8.32 million owner-occupied homes priced above FHA loan limits, if the new rule is allowed to take effect, an additional 3.87 million homes would no longer be eligible for FHA-insured financing, leaving 12.2 million homes ineligible for FHA insured financing.
However, a study by the Federal Reserve found that the lower loan limits would have only affected about 1.3 percent of purchase mortgages last year and last week Radar Logic’s RPX Monthly Housing Market Report found that less than ten percent of the home purchases in the high cost areas it surveys would have been affected.
In reaction to the Senate’s vote, Bob Nielsen, chairman of the National Association of Home Builders (NAHB), stated on Friday, “Congress must act soon to ensure that this measure is enacted into law. Otherwise, the current drop in mortgage loan limits will reduce housing demand, and place downward pressure on home prices in major markets. This will exacerbate the current housing downturn, trigger more foreclosures, impede job growth and endanger the fragile economic recovery.”
The amendment may find some resistance in the House of Representative which passed several bills earlier this year to end all of the Obama Administration’s homeowner assistance programs. Those bills were never taken up in the Senate.
Likewise, the Obama Administration had previously proposed allowing the extended loan limits to expire at the end of September as a first step in weaning the government out of the mortgage business.
Senator Menendez stated, “Getting our housing market moving again is one of the most important tasks facing the country.”
Tags: conforming loan limits, Freddie Mac, Fannie Mae, FHA, Congress, mortgage loan limits, foreclosures, job growth, economic recovery