Federal Housing Finance Agency Acting Director Edward DeMarco is deliberating lowering the loan limits for Fannie Mae and Freddie Mac. Congress and the industry, however, are voicing a singular opposition, claiming such action would be detrimental to the housing recovery that is starting to take place across the country.
Members of Congress and several industry groups have sent letters to DeMarco over the past week urging him not to lower the GSEs’ conforming loan limits.
“Lowering loan limits further restricts liquidity and makes mortgages more expensive for households nationwide,” stated the National Association of Federal Credit Unions (NAFCU) in a letter signed by several other industry groups.
The association pointed out that many Americans still struggle to gain access to credit, and in the past year most conforming loans went to borrowers with credit scores ranging between 760 and 770.
The Mortgage Bankers Association (MBA) expressed similar concern in a letter it sent October 4, saying, “Any reduction in loan limits would have significant impact on thousands of families caught between the current limits and new, lower limits.”
On the other hand, reducing the loan limit would “significantly increase demand for private capital,” according to Fitch Ratings. However, the agency admitted “it is not clear how much impact this would have on the nascent recovery in the housing market.”
According to NAFCU’s calculations, lowering the conforming loan limit from $417,000 to $400,000 would have shut almost 154,000 borrowers out of the market in 2012.
A letter signed by more than 60 members of Congress stated, “We are deeply concerned” by the possibility DeMarco would single-handedly lower the conforming loan limit.”
The representatives noted in their letter, “Currently, homeownership rates are at an historic 18-year low,” adding that “[m]ortgage credit is virtually nonexistent for middle class Americans with less than stellar credit.”
Rep. Brad Sherman (D-California), one of the 66 representatives to sign the letter to DeMarco pointed out that the current loan limit is necessary to support the middle class. “In the Los Angeles area, these limits are not at the level of a mansion; they afford a middle class home,” he said.
The federal lawmakers also pointed out that DeMarco previously stated he would not make changes to the conforming loan limit on his own. Their letter referenced comments DeMarco made in 2011 before the House Financial Services Committee when he said, “I really and truly believe that the Congress of the United States is the body that should make the determinations about the future path of the loan limit if it is going to be something other than what current law provides.”
“We couldn’t agree more,” the letter from congressional members stated.
Furthermore, Congress and the NAFCU question the legality of such a move by DeMarco, as the Housing and Economic Recovery Act of 2008 expressly states that if home prices decline, then the loan limit should remain the same.
The act “clearly indicated that the limits shall NOT decline below the current $417,000,” stated the NAFCU in its letter.
MBA also expressed concern for the industry as it already faces major changes due to the Consumer Financial Protection Bureau’s (CFPB) Qualified Mortgage (QM) and Ability-to-Repay rules that will take effect in the new year.
“The operational challenges of changing loan limits in hundreds of jurisdictions around the country while at the same time redesigning, installing, and testing new CFPB-compliant loan origination systems would impose an excessive burden on the industry,” MBA stated.