Reports that the ceiling on government-backed mortgages may fall at the start of 2014 have much of the housing industry up in arms.
Fannie Mae and Freddie Mac currently guarantee loans of up to $417,000 in most areas of the U.S., with higher caps in more expensive regions. But the Federal Housing Finance Agency and President Obama have each released statements in recent months suggesting that the conforming loan limit for single-family mortgages may drop next year.
Lowering the loan limit would help reduce the private mortgage sector's reliance on government support, according to supporters of the change. Fannie, Freddie, and the Federal Housing Administration backed about 95% of newly originated mortgages in 2012.
But the private industry has little interest in being weaned off Fannie and Freddie, if recent letters to the FHFA from the National Association of Realtors and mortgage lenders are any indication. Reducing the loan limit "would have a very disruptive impact on the availability of affordable housing credit, on our housing recovery and our economy as a whole," the Mortgage Bankers Association and 14 other industry organizations wrote in a Wednesday letter to FHFA Acting Director Edward DeMarco.
"Lowering the loan limits further restricts liquidity and makes mortgages more expensive for households nationwide," the letter states.
Implicit in these objections is the idea that banks would be more hesitant to make mortgage loans without the reassurance provided by government backing. "While there has been some return of private lending without the benefit of a federal guarantee, it remains limited and available only to the most highly qualified borrowers," the National Association of Realtors wrote in a letter last month. The NAR suggested that lowering the cap for government-backed mortgages would risk "denying homeownership to many credit-worthy homeowners who are not in a position to meet the extremely risk-averse standards of the current jumbo lending market."
Representatives at the FHFA did not immediately respond to calls seeking comment.