NAHB on Tuesday reiterated its support for restoring conforming mortgage loan limits for Fannie Mae, Freddie Mac, and the Federal Housing Administration to where they were before October 1, when Congress and the Obama administration let those limits recede.
The housing trade group joins the National Association of Realtors, the Mortgage Bankers Association, and several other interested organizations that are trying to persuade enough lawmakers in the House of Representatives to approve legislation that would raise the ceiling for loans for the government-sponsored entities and FHA to $729,750. The Senate recently passed a bill, by a vote of 60 to 38, that would extend the higher limits to 2013.
On October 1, the national loan ceiling for the GSEs and FHA fell to $625,000 in the country’s most expensive markets such as New York and San Francisco. While the base limit stayed at $417,000, in some lower-priced markets, the limits for loans backed by FHA fell to as low as $271,050. And the formula for calculating limits for higher-priced markets changed from 125% of the area’s median home price to 115%.
If Congress can’t arrive at a compromise position, the lower conforming loan limits will become permanent on November 18.
During NAHB’s teleconference, Jim Tobin, the association’s senior vice president of government affairs, said that the lower loan limits “are placing enormous downward pressure on prices around the country,” noting that he’s spoken to builders “who have lost deals because of lower appraisals.” Tobin said those lower limits were disrupting the ability of government agencies to provide mortgage liquidity, to the detriment of the housing market.
Robert Dietz, NAHB’s tax expert, conceded that the geographic impact of the lower loan limits is “concentrated” within certain high-end markets, mostly on the east and west coasts of the country. However, he noted that 204 counties that incurred a decrease in their loan limits insured by the GSEs have 20,705,840 owner-occupied homes. Within those counties, 5,001,065 homes are now priced above the lower loan limits, including 1,375,241 that were pushed outside of those limits on October 1.
The impact is even more pronounced for loans insured by FHA, said Dietz. The lower loan limits affected 620 counties with 44,304,628 homes, of which 12,189,124 are now priced outside of the lower FHA loan limit. That total includes 3,866,480 homes that were pushed outside the limit by the regression.
“The October 1 change pushes housing policy in the wrong direction,” asserted Dietz. And Tobin admitted that NAHB and its allies are in a “battle” with competing factions—including a considerable number of lawmakers in Congress—that are opposed to any more taxpayer money being invested in the housing or mortgage sectors, and are particularly averse to any measure that would further prop up Fannie and Freddie at the expense of private-sector financing reasserting itself.
For example, Edward Pinto, a resident fellow at the American Enterprise Institute (which has been calling for the dismantling of the GSEs for years), made a presentation on Capitol Hill last Friday, during which he stated that the loan limits should stay where they are because the reductions had "no significant impact on the housing market; that the time for rolling back the GSEs is now; and that the FHA is "already dangerously overextended." Pinto believes that reinstating the higher loan limits "would indicate that Congress is not serious about begining the process of bringing back private sector involvement."
But Fannie, Freddie, and FHA currently guarantee about 95% of all new mortgages, Tobin pointed out. “We believe in a ramp up and a robust private sector, but it’s not happening right now,” he said. “And it can’t be understated that the housing market can’t stand any more shocks to it.”
On its website, NAHB is urging its members to contact their local representatives and to “take your concerns to their party leadership.” In a video posted on the site, NAHB’s CEO Jerry Howard frames raising of loan limits as an issue of fairness. “If the federal government is going to underwrite and help provide for homeownership for some Americans in some geographic areas of the country, it should do so everywhere, regardless of the [home's] cost.”
John Caulfield is senior editor for Builder magazine.