Yesterday the Senate voted to approve a measure that would restore the high-balance conforming loan limit to $729,750 in high cost areas. The limit was temporarily increased in 2008 in response to the housing crisis. After being extended several times, the temporary limits expired on October 1, 2011. For now, the largest loan that can be purchased or guaranteed by Fannie Mae, Freddie Mac, or the FHA is $625,500.
The measure was added to a spending bill by Senator Robert Menendez, a democrat from New Jersey. The measure approved 60-31. If the larger spending bill is approved, the bill would move to the House of Representatives. If enacted, it would then need to be approved by the president. The extension would last through 2013. The risk of funding these larger loans would be hedged by charging a 15 basis point fee on the principal balance of the mortgage.
I see this as a common sense measure to help around the margins of the housing market. This is by no means a panacea for what ails the housing market, but would provide a marginal boost to the housing market in certain areas.
That said, I bet this is unlikely to pass. It flies in the face of the sentiment among many republican lawmakers that the government should be curtailing, rather than expanding its role in the housing market. It seems that our elected officials would have difficulty coming to a consensus on what to order for lunch, let alone issues of spending and housing policy. I’m not holding my breath on this one.