Housing and mortgage industry trade groups are banding together to press the Federal Housing Finance Agency (FHFA) to hold off on its plans to reduce the size of mortgages that can be approved by Fannie Mae and Freddie Mac.
In a letter to FHFA Acting Director Robert DeMarco, the groups warned that reducing the Fannie and Freddie loan limits would have a "very disruptive impact" on the availability of mortgage credit, the housing market and the economy as a whole.
They also questioned the agency's authority to make such a change, arguing that the Housing and Economic Recovery Act of 2008 prohibits the FHFA from reducing the limits until housing prices have fully recovered.
Risk to housing market cited
The letter, submitted this week by the Mortgage Bankers Association, National Association of Realtors, National Association of Home Builders and 11 other trade groups, comes close on the heels of similar letters sent to DeMarco by a bipartisan group of 66 members of the U.S. House and a group of 13 mostly Democratic Senators.
"Congress did not give FHFA the authority to reduce the loan limits. In fact, we included language in statute explicitly stating that the loan limits could not be reduced," said Rep. Gary Miller, vice chair of the House Financial Services committee. He noted that even though home prices have been rising, reducing the limits could damage what he called the fragile housing recovery and put homeowners at a greater risk of home value declines.
Impact on conforming jumbos not clear
The scheduled reduction, due to take effect in January, is not particularly large. It would reduce the standard loan limit for Fannie Mae or Freddie Mac mortgages in most parts of the country to $400,000 for a single family home, down from $417,000 currently. The trade groups estimate that such a reduction would have affected 154,000 borrowers in 2012, out of a total of approximately 5 million homes sold.
What's less clear, however, is the impact it would have on "jumbo conforming" mortgages in high-value areas where the limit is currently $625,500. Scaling that limit back to bring it more in line with the standard limit could have a significant impact on home loans and purchases in high-value communities.