Will Congress Extend Loan Limits for Mortgages?
Citing continued weakness in the housing market, a coalition of mortgage and other industry groups are calling on Congress to extend higher loan limits temporarily allowed on Fannie Mae, Freddie Mac and FHA mortgages.
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Letters to congressional leadership from the Mortgage Bankers Association and other groups warn that allowing the limits to expire as scheduled after Sept. 30 would inhibit home sales at a time when the housing market is still struggling to recover. They urge that the current limits be extended at least one year and perhaps through the end of 2012.
“It is no secret that our economy remains weak. Any further disruption to the real estate market will stall our recovery,” read one letter, addressed to the leadership of the House Appropriations subcommittee. “Housing markets remain fragile and cannot handle a mortgage disruption like lower loan limits.”
The letter goes on to say that many lenders have already begun to refuse applications for mortgages under the current, higher limits, for fear the loans may not close before the Sept. 30 deadline. Currently, homebuyers and refinancers in certain counties with high real estate (NYSE:IYR) prices can obtain conforming mortgages (those which Fannie Mae, Freddie Mac or the FHA will back) as high as $729,750. The standard conforming loan limit is $417,000, but Congress voted to raise it for certain high-cost areas in February 2008 as a boost to the housing market. Loan limits for individual counties are based on their median property value.
That maximum is scheduled to decline to $625,500 after Sept. 30. However, the individual limit for each county will be recalculated as well, for the first time since the original limits were set in 2008. Since property values in most communities have declined significantly since then, some communities will experience far larger declines in their loan limits than the maximum figures suggest.
The coalition says the reduced limits for Fannie Mae and Freddie Mac will affect more than 200 counties, while those for FHA will affect more than 600. These counties contain 27 percent and 59 percent of all owner-occupied homes in the country, according to one letter.
It should be noted, however, that not all home sales in these counties would be affected, as many home sales and mortgage refinances in those counties fall well below the conforming limits. The letter was signed by 14 organizations and businesses, including the National Association of Realtors, National Association of Realtors, American Land Title Association, the U.S. Conference of Mayors and the National League of Cities. The Mortgage Bankers Association also sent separate letters to the House and Senate majority and minority leaders, over the signature of MBA President David Stevens.