September 5th, 2013 2:12 PM by Richard T. Cirelli
Fannie, Freddie & FHA Loan Limit Reduction Coming?
The Federal Housing Finance Agency (FHFA) is considering a reduction in Fannie Mae and Freddie Mac's loan limits that is slated to kick in the first day of January.
“FHFA has been analyzing approaches for reducing Fannie Mae and Freddie Mac loan limits across the country, and any such change would be announced with adequate advance notice for implementation on Jan. 1, 2014,” a FHFA spokesman said.
The maximum loan limit on Fannie and Freddie single-family loans is presently $625,500 in the highest priced counties such as Orange and Los Angeles.
In pursuing this loan limit reduction, the Government Sponsored Enterprise (GSE) regulator is following its own agenda of trying to entice private capital into the mortgage market. A White House fact sheet also calls for the loan limits on FHA insured loans to fall at the end of 2013 as scheduled.
“HUD and FHFA should closely examine using their existing authorities to reduce loan limits further consistent with the pace of the recovery, market developments, and the Administration’s principles and transition plan for housing finance reform. Any changes should take into account regional differences in housing prices, and also regional variation in the pace of the housing recovery,” the fact sheet says.
Additionally, a Bloomberg article last week noted the Federal Housing Finance Agency is planning to reduce conforming loan limits this October, which would increase the size of the private label market and be a positive for securitizers of Mortgage-Backed Securities. It’s the ability of lenders to pool their loans and then securitize and sell them in the secondary mortgage market that keeps the flow of mortgage money moving. The securitization of jumbo loans has only recently returned to the mortgage market explaining the plethora of jumbo lenders and products now available.
While it is understandable that the Government wants to divest itself of Fannie Mae and Freddie Mac now that the housing and the mortgage market is recovering, the reduction of loan limits and the privatization of these two Governmental agencies can only result in higher interest rates. Additionally, the impending “Qualified Mortgage” and “Qualified Residential Mortgage” regulations that are set to kick in come January, 2014 will make it more difficult for many people to qualify and if they don’t, any alternative loan programs are likely to be more expensive.
Will these regulatory changes combined with the already higher rates reverse the progress that our economy has made? I welcome your opinions and comments.