With home prices skyrocketing from Boston to Los Angeles, real estate professionals and policymakers are asking why Hawaii and Alaska continue to enjoy conforming-loan limits more than one-third higher than the limit for the contiguous 48 states.
At $412,500, the higher threshold for the two newest states dwarfs every other state's limit of $275,000, which critics say does not meet the needs of residents in many high-cost areas. Conforming-loan limits - the maximum single-loan amount that Fannie Mae and Freddie Mac can purchase - are adjusted annually based on national home price data. The limits rise almost every year.
During the 1970s Alaska, Hawaii, and the Virgin Islands were awarded higher loan limits because of the high costs of building there. Construction of the Alaskan oil pipeline in the decade brought an influx of workers, and a lack of housing stock sent home prices soaring as building materials were imported. In the middle of the Pacific, Hawaii found itself in a similar situation.
Yet the average price of a home in San Francisco today is much higher than in Anchorage - $483,000 versus $139,000 - according to data from the National Association of Realtors, and the loan limit for the lower 48 states remains relatively stagnant. At $280,000, the median home price in Honolulu is one of the highest in the United States but still lags many areas forced to use the lower limit.
Though higher building costs pushed home prices out of sync with the rest of the nation in the 1970s, said Marcia Salkin, director of public policy at the California Association of Realtors, the divergent limits' equity is now being called into question. "And not just for California but for areas in Connecticut, Massachusetts, New Jersey, New York, and Seattle," she said.
Inflation and recent leaps in price appreciation are largely to blame, says Carylon Dopp, an honorary director at the California association. "We really need the help - $275,000 just is not enough," said Ms. Dopp, a Realtor at Security Pacific Real Estate in Richmond, Calif. California is dependent on the secondary market, added Ms. Salkin, yet a very small percentage of homebuyers in areas such as northern California can afford homes using a conforming loan product.
Though the issue percolates to the surface now and then, no one has been willing to push it until now, and the California group's 98,000 members have been working closely with its national affiliate, Ms. Salkin said.
This month officials of the National Association of Realtors are lobbying in Washington to amend the conforming loan limits. The organization officially adopted a motion to change the limits last November, and George Griffin, the National Association of Realtors' managing director of policy, said it is "trying to get its arms around the issue."
"We are working on building awareness for the need for change," Ms. Salkin said. CAR recently met with 30 members of Congress.
While other, more pressing, problems have taken priority over conforming loan limit reform, such as Rep. Baker's bill to change oversight of Fannie and Freddie, it may gain momentum in the coming months.
A spokesman for the Mortgage Bankers Association acknowledged that the matter is heating up but said the group has no position yet. "We will hear from our members this summer," he said.
Freddie Mac supports the change, a spokeswoman said, but it is not something the secondary giant will focus on. A spokeswoman for Fannie Mae said the GSE charter explicitly lists Alaska, Guam, Hawaii, and the Virgin Islands as places where Fannie and Freddie can increase the loan limit by 50%. "This is our congressional charter, so we don't have the authority to consider a limit for other states that is higher than the standard loan limit," she said.
"In their heart of hearts they are secretly positively disposed to this, but they may not see this as an issue they want to get out in front of," said Rep. Brad Sherman, D-Calif.
Yet lenders remain tight-lipped.
"We are still taking a long look at the issue and the impact. We are not at a point where we are ready to talk about it yet," said a spokeswoman for Bank of America. A Wells Fargo spokeswoman deferred to the industry associations for comment.
Some see raising limits as a short-term solution to a larger problem that needs attention. Rep. Gary Miller, R-Calif., a member of the Financial Services Committee and the housing subcommittee, said he believes most people really do not understand the housing situation in the United States.
"We have taken a Band-Aid approach," he said, arguing that subsidies for buyers at one unaffordable level does nothing to help them move up. "When their income goes up, there is no more subsidy," he said. "It is a circle of poverty."
Rep. Miller said the United States needs to create a marketplace "where people can move up to the next level."
"Many cities are either for the poor or for the wealthy. We need to create an environment where a free market can work and limit government involvement, where housing prices will drop and increase supply to meet demand," he said.
Nonetheless, Rep. Sherman supports going straight in to raise limits. "I was a strong supporter in raising the limits nationwide," he said. But with the growing debate over Fannie and Freddie, reform may take a backseat for now, he said.
"I don't think you can buy a home for $275,000 and walk to Countrywide [Credit Industries], which is in the middle of my district," said Rep. Sherman, chuckling. "If you can, have a realtor call me."