How gradually should maximum loan limits for government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac be reduced?
The Federal Housing Finance Agency (FHFA), conservator of the GSEs, for example, is currently considering reducing the maximum loan limit for one-unit properties, currently $417,000 in most areas, to $400,000 – about a 4% reduction – and from $625,000 to $600,000 for other ‘higher cost’ areas.
But based on current market conditions, is this enough of a reduction – or not enough?
And what about the timing? When should these reductions take place – and how much advanced notice should the FHFA provide to the industry when lowering the GSEs' maximum loan limits?
During a speech he made in October during the Mortgage Bankers Association's 100th Annual Conference & Expo in Washington, D.C., Edward DeMarco, interim director of the FHFA, said, moving forward, the agency would provide all market participants with at least six months notice before making any adjustments to the GSEs' maximum loan limits. This was in response to concerns raised by industry groups which argued that reducing loan limits at this time could potentially harm both home buyers and lenders by creating undue complexity, thus disrupting the housing market recovery.
The FHFA, however, is now seeking input on the implementation of the proposed limits -including whether six months' advance notice is adequate, or whether industry players would rather see the agency announce a multi-year schedule of decreases, including the dates to which any future loan purchase limit reductions would be tied.
Just last month, the FHFA announced that the maximum conforming loan limits for mortgages acquired or guaranteed by the GSEs would remain at $417,000 for single-unit properties until the end of 2014. In addition, the special maximum loan limit for ‘higher cost’ areas of the country would remain at $625,000.
Loan limits are typically changed each year according to a formula that takes into account median prices in local areas; however, they have been unchanged for several years because of regulations put in place in response to the housing crisis.
‘[The] FHFA 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,’ the agency states in a release. ‘Therefore, before deciding to undertake any modifications, FHFA is seeking public input that will inform its decision-making and ensure any change minimizes market disruptions.’
Input must be received no later than March 20, 2014, and should be submitted to the FHFA's Office of Policy Analysis and Research, 400 7th Street, SW, Ninth Floor, Washington, DC 20024 or via email to loanlimitinput@FHFA.gov.
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