Representative Barney Frank (D-MA) is advocating making the current conforming loan limits permanent.
Governmental (FHA, VA, USDA) and quasi-governmental mortgage agencies (Fannie Mae, Freddie Mac) are only allowed to back or purchase mortgages up to a certain amount. In most places across the country this amount is $417,000. In some high cost areas where the median home price exceeds the conforming limit (such as Boston, Miami, Boulder, Washington D.C., New York, and Los Angeles), this amount is $729,750. In these areas loans that fall between $417,000 and $729,750 but are still eligible for government backing are referred to as high-balance conforming loans.
Loan limits were temporarily raised in 2008 in response to the lack of private investors resulting from the housing crisis. The raised limits were meant to stimulate home sales and provide more equitable access to GSE funding. The upper-end loan limit is set to drop to $625,500 at the end of September.
Now Rep. Frank, co-author of the Dodd-Frank financial reform bill, and the most senior Democrat on the House Financial Services Committee, says that the current limits should remain in place permanently. He is quoted in an article by Alan Zibel in today’s Wall Street Journal as saying:
“The same level can’t be right for the whole country. It would be an especially bad time economically to [lower conforming limits].”
There is proposed legislation from Rep. Brad Sherman (D-CA) and Rep. Gary Miller (R-CA) that would permanently extend the current conforming loan limits. This plan runs entirely counter to the oft-repeated desire of many Republican lawmakers to remove the government from housing finance. One particularly aggressive proposal would have wound down Fannie and Freddie within five years (quite frankly, this is probably not very realistic).
The Journal article speculates that a one year extension of the current limits is more likely than a permanent extension, and I agree. The chances that such an extension would pass probably hinge on how adamant the Republicans are on reducing the government’s involvement in mortgages. We shall see.
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