Fannie Mae and Freddie Mac have decided to maintain their maximum loan limits for single-family homes at $203,150 despite a second- straight annual decline in the benchmark index for the conforming loan limits, a move that now has thrifts furious and House Republicans curious.
Fannie and Freddie both decided to maintain the current limit after the Federal Home Finance Board announced that its monthly home price index, the benchmark index for the conforming loan limit, had declined 1.5% from 1993. Both chose not to lower their limits in 1993 and again in 1994, prompting thrifts to intensify their prodding of Congress to amend the law to force both government-sponsored enterprises to adjust the conforming loan limit down when the index goes down.
If the [home price] market has an overall decrease and loan limits stay high, it only increases the size of market for [Fannie and Freddie!, said Jay Harris, a lobbyist with the Savings & Community Bankers of America, adding that GSEs decision not to lower their limits unfairly hinders portfolio lenders, who view Fannie and Freddie as a competitive threat.
Harris said SCBA and the California League of Savings Institutions have stepped up their discussion on Capitol Hill as a result. Some mortgage industry analysts believe chances that Congress could consider that action are good.
Republicans in both houses rejected legislation that would have increased the maximum loan limits for FHA loans, but they did agree to a provision that would increase the FHA loan limit in high-cost areas to 75% of the conforming loan limit. Because the GSEs would, in effect, control those limits as well, it could be impetus enough for a hearing.
Some lobbyists think that possibility is real. Mike Ferrell, a legislative counsel with the Mortgage Bankers Association, said there were strong sentiments toward altering that rule among Republicans on the House Banking Committee. There's a reasonable chance it could get passed, he said, noting that mortgage bankers still prefer the current formula.
The conforming loan limit is calculated annually based on October-to-October data provided through the FHFB. The GSEs are required to adjust the maximum loan limits upward when the home price averages index rise, but the law is silent on adjustments when the averages index down. When the Housing and Community Development Act was enacted in 1980, lawmakers didn't consider what would happen when the index adjusted downward. The 1.5% index drop in 1994 was just the third ever following the 3% drop in 1993 and the first-ever drop in 1990 when it plummeted one-tenth of 1%. Fannie and Freddie adjusted their limits downward in 1991, but chose not to do so in 1993. That response drew the ire of HUD Secretary Henry Cisneros, who said that lowering the limits would improve the housing needs of low-income home buyers. A bipartisan Senate group quickly rebuked Cisneros position contending that lowering the limits would have the opposite effect.