The federal regulator of Fannie Mae and Freddie Mac is requesting public input on a proposed 4 percent reduction in the conforming loan limit, which has stood at $417,000 since before the housing bust despite falling home prices.
The Federal Housing Finance Agency is proposing to reduce the conforming loan limit to $400,000 as soon as next October. The loan ceiling for Fannie and Freddie in the priciest markets would be cut from $625,500 to $600,000.
FHFA characterized the proposal as part of a broader, gradual decrease in loan limits, to further a goal of shrinking Fannie and Freddie’s market share by reducing their role at the high end of the market.
The conforming loan limit is adjusted upward when prices rise, but hasn’t been adjusted downward. Bill McBride, author of the blog Calculated Risk, has estimated that the conforming loan limit would be around $360,000 if it had been allowed to fall with home prices during the downturn.
Real estate industry groups have objected to any reduction in the conforming loan limit, and questioned FHFA’s legal authority to impose reductions without direction from lawmakers.
The agency today published an impact analysis of the planned reductions, and outline its position that it has the legal authority to make them.
Had the proposed limits been in force last year, Fannie and Freddie would have been barred from purchasing about 170,000 of the mortgages they acquired in 2012, or 2.9 percent of total acquisitions. About 50,000 purchase mortgages would have exceeded the lower limits proposed today.
But because many homebuyers would be able to make larger down payments in order to qualify for a conforming loan — or obtain a “jumbo” loan not backed by Fannie and Freddie — higher loan limits might derail only 13,000 purchase loans, the FHFA analysis concluded.
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