Senate Approves Higher Conforming Loan Limit

To the chagrin of some industry participants and the elation of others, the Senate voted in favor of an amendment that would reinstate the heightened conforming loan limits for mortgage loans backed by Fannie Mae, Freddie Mac, and the Federal Housing Administration (FHA). The amendment, introduced by Sens. Johnny Isakson (R-Georgia) and Bob Menendez (D-New Jersey), passed late Thursday with a 60 to 38 vote. The conforming loan limit was previously increased on a temporary basis to $729,750, but the rate expired September 30 and returned to its original rate of $625,500. If the House also approves, the conforming loan limit will rise again to $729,750 and remain there through 2013. Representatives from the National Association of Home Builders and RE/MAX spoke out in their support of the Senate’s decision. “The National Association of Home Builders [NAHB] commends the Senate for approving” the amendment, stated Bob Nielson, chairman of the NAHB. “Restoring the higher loan limits for the housing government sponsored enterprise and the FHA will provide home owners and home buyers with safe and affordable financing while providing a much-needed boost to housing markets all around the country,” Nielson added. Nielson believes allowing the conforming loan limit to return to its original rate would “reduce housing demand, and place downward pressure on home prices in major markets,” which will “exacerbate the current housing downturn, trigger more foreclosures, impede job growth and endanger the fragile economic recovery.” RE/MAX chairman and co-founder Dave Liniger issued a statement Friday in response to the Senate’s vote, saying “Raising the loan limits was the right thing to do in 2008, and it would be a big mistake to burden the market at this point with lower limits. Housing is still fragile, and if the higher loan limits aren’t extended we risk losing momentum we’ve worked hard to build over the past three years.” However, with the GSEs guaranteeing about 90 percent of all residential mortgages, others in the industry feel the government is crowding out the private market, and extending the inflated conforming loan limit will prolong this trend. At a Senate subcommittee hearing in September, Martin S. Hughes, president and CEO of Redwood Trust, urged Congress not to extend the heightened conforming loan limit. “[T]he government is crowding out private securitizations, by maintaining an abnormally high conforming loan limit and by subsidizing the guarantee fees that the GSEs charge issuers,” Hughes stated.