News that Congress could pass an appropriations minibus that contains a provision to raise the loan limits for Federal Housing Administration (FHA)-insured loans has drawn sharply divergent views.
Reinstating the previous $729,750 loan limit for high-cost areas ‘makes no sense’ considering the weakened state of the agency's insurance fund, according to Rep. Scott Garrett, R-N.J. On the heels of a congressional report released this week indicating that the FHA's cash reserves have fallen 45% since last year, Garrett issued a statement Tuesday characterizing proposals to restore the agency's temporarily heightened conforming loan limits, which expired Sept. 30, as "reckless."
"With the potential for tens of billions of dollars in taxpayer losses, it is unconscionable to be even considering raising the conforming loan limit so that the American taxpayers can insure the mortgages for million-dollar homes," Garrett said.
The amendment – proposed by Sens. Robert Menendez, D-N.J., and Johnny Isakson, R-Ga. – would restore the FHA's previous conforming loan limits but not the loan limits for Fannie Mae and Freddie Mac.
The decision to reverse stride on the loan limits – and only for one segment of government product – could create confusion in the market, both for lenders and consumers, warned Federal Housing Finance Agency (FHFA) Acting Director Edward DeMarco.
‘It sends a different signal to now be stepping back in after we started to step away,’ he said during a Senate Banking Committee hearing Tuesday. Although it is too early to gain a full understanding of how the Sept. 30 loan-limit expiration affected the government-sponsored enterprises (GSEs) – which were not huge buyers of the high-priced loans – DeMarco said he has seen no evidence suggesting that local markets have been disrupted. The FHFA's strategy of reducing the GSEs' footprint is clear, he added, but the government's plan for the broader market is not.
Raising the loan limits fosters a sense of "which direction are we moving with regard to the government's role in the market,’ he said.
Meanwhile, the compromise to raise the FHA limits but not those for Fannie and Freddie could confuse certain markets regarding which limits are applied to which loans, DeMarco said.
Meanwhile, Tom Schatz, president of the Council for Citizens Against Government Waste, said passing the minibus bill would be the "height of irresponsibility." In a statement, Schatz said raising the loan limits equates to subsidizing the nation's wealthiest.
"The federal government should not be running a mortgage business, nor should it be gambling with taxpayers' hard-earned dollars when the private sector has the expertise to assess risk and grant loans for those who qualify," he said. "As long as the FHA is treading on such thin financial ice, expanding its presence in mortgage insurance markets should be out of the question."
That sentiment is not universal. Returning to the higher limits is essential to stabilizing the housing market, and the FHA is more than capable of carrying the load, according to the National Association of Home Builders Chairman Bob Nielson.
‘The FHA program is fully self-supporting, and a great example of a public-private partnership with lending institutions," Nielson said in a statement Tuesday. "Restoring the loan limits will provide millions of potential consumers in markets throughout the nation access to safe, affordable mortgage financing."