WASHINGTON — A bipartisan group of lawmakers, aided by banking and housing groups, are beginning a strong lobbying push to forestall a scheduled drop in the maximum sizes of mortgages backed by the government-sponsored enterprises.
But their efforts face an uphill climb due to heavy opposition from two unlikely allies: House Republican leadership and the Obama administration.
Industry representatives and congressional advocates warn that the scheduled Oct. 1 drop in loan limits would mean a tightening of mortgage credit, particularly in certain expensive areas such as San Francisco and New York. They claim that allowing the higher limits to expire would harm both the housing market and the broader economy.
"If we don't extend them, and they're allowed to drop, you'll take what is already a struggling housing market and further depress it," said Rep. John Campbell, R-Calif., in an interview. "Housing prices will further decline."
Campbell and Rep. Gary Ackerman, D-N.Y., have co-sponsored a bill that would extend the elevated limits through Sept. 30, 2013.
Sens. Robert Menendez, D-N.J., Johnny Isakson, R-Ga., and Dianne Feinstein, D-Calif., meanwhile, introduced a bill this week that would extend the higher limits until Dec. 31, 2013.
Despite the bipartisan collection of lawmakers, however, House Republican leadership is on the same page, at least for now, as the White House. Both have said they oppose any extension in order to allow the private sector back into the mortgage market.
"The White House wants to move away from that. Republican leadership wants to move away from that," said Rep. Scott Garrett, R-N.J., who chairs the House subcommittee on capital markets and government-sponsored enterprises, in an interview. "There's enough room on the banks' balance sheets to absorb this hit, so I think it's a necessary next step."
The current elevated limits on loans backed by Fannie Mae, Freddie Mac and the Federal Housing Administration are the result of a series of steps that Congress took, starting in 2008, to bolster the faltering U.S. housing market.
As recently as early 2008, with a few exceptions, Fannie and Freddie would not back a mortgage of more than $417,000. Today the buyer of a single-family home in high-cost parts of the country can get a Fannie or Freddie-backed mortgage for up to $729,750. Unless Congress takes action, that figure will drop at the end of September to $625,500.
In addition, the FHA estimates that its own loan limits, which currently range from $271,000 to $729,750 in different parts of the country, will decline in about 20% of counties nationwide. Those counties are located in 42 states.
In September 2010, Congress passed a one-year extension of the loan limits as part of a larger budget agreement. One oft-heard view on Capitol Hill is that a similar budget deal this September probably offers the best opportunity for the passage of another loan-limit extension.
But two key factors have changed since last year. First, Republicans took control of the House. Even though a loan-limit extension likely already has some support among House Republicans, their leadership on the House Financial Services Committee has been on the record since at least March 2010 as opposing the elevated limits.
Second, the Obama administration stated its own opposition to extending the elevated limits in a February 2011 report that laid out its views on how to reform the U.S. housing finance system. The report stated that "the administration recommends that Congress allow the temporary increase in limits that was approved in 2008 to expire as scheduled on October 1, 2011."
Supporters of an extension argue that the continuing weakness in housing and the broader economy provides a strong reason for opponents, including the Obama administration, to change their position.
"Our hope is that people will be pragmatic and recognize that positions made late last year, early this year, were based on market conditions at the time, and market conditions have changed," said David Stevens, who stepped down this year as commissioner of the FHA to lead the Mortgage Bankers Association.
Rep. Barney Frank, the top Democrat on the House Financial Services Committee, is among the supporters of extending the higher loan limits. A spokesman for Frank said that the congressman believes the administration is now working on an extension.
But an Obama administration official, speaking on condition of anonymity, said that the administration's view has not changed since February.
"Our position remains the same," the administration official said.
An expiration of the elevated loan limits would impact two groups of borrowers directly. Home buyers in expensive regions who are seeking loans at the high end of what Fannie and Freddie currently back would be pushed into the private market. Another group of borrowers that now seeks FHA loans would likely turn to Fannie or Freddie.
For affected borrowers, the result could be higher interest rates, higher down payment requirements, or less appealing loan terms. Overall, estimates are that around 3% to 5% of the housing market would be impacted.
Jaret Seiberg, a Washington-based research analyst with MF Global, said a conforming loan extension is possible but faces an uphill battle, pegging its odds at 40%. Still, he said that estimate could rise during August as lobbying picks up and lawmakers look for ways to help the housing market.
Campbell agrees.
"If the economic troubles that we appear to be seeing now are still around or worse by the time we go back into session, then I think we're going to be looking for something that can pass," he said.
Seiberg argues that the Senate bill in particularly may gain traction. The bill would cover the budgetary cost of maintaining higher loan limits by increasing the guarantee fees charged on the loans.
"I think paying for the increase removes one of the biggest stumbling blocks to enactment," Seiberg said. "It doesn't mean that the path is smooth — there are still plenty of hurdles — but it removes one of the bigger hurdles."
He acknowledged, however, that getting House Republicans to sign off on it would be problematic.
"Getting an extension through the House has always been the real challenge," Seiberg said. "This takes away one of the objections that GOP leaders could have used, which is that the bill would increase the deficit."
Edward Mills, a research analyst for FBR Capital Markets, is far more convinced that the elevated loan limits will expire as scheduled.
Mills said that the lobbying campaign by the mortgage bankers, National Association of Realtors and National Association of Home Builders is part of a strategy to go on offense, rather than to play defense.
He said that some Republicans in Congress would like to see the loan limit fall below $625,500, and argued that by pushing to maintain the current limit of $729,750, industry officials are seeking to position the $625,500 level as a compromise.
"To me it's very clear that on Oct. 1 conforming loan limits are coming down," Mills said.
