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Congress may restore home-loan limit to $729,750
By Kathleen Pender, SF Chronicle

Congress will decide this week whether to reinstate the limit on government-backed home loans in high-cost areas to $729,750. The so-called conforming-loan limit dropped to $625,500 on Oct. 1.

Although the odds of passage have fallen in the past week, FBR Capital Markets analyst Edward Mills says they are still better than 50-50.

The bill would let Fannie Mae, Freddie Mac and the Federal Housing Administration purchase loans up to $729,750 in about 670 counties with high home prices, including most of the Bay Area, through December 2013. That was the limit in effect for several years until Oct. 1, when it dropped to $625,500.

To offset the potential cost to taxpayers, the bill would impose a new "premium loan fee" on mortgages between these two amounts, which would increase the interest rate on these loans by 0.15 percentage point.

Although borrowers today can still get loans above the Fannie/Freddie/FHA limit, the rate is somewhat higher and they generally must put down at least 20 percent.

Real estate agents say the lower limits will hinder the sale of homes in the $800,000 to $1.2 million range, which will have a ripple effect if people who own or would like to buy those homes can't move. "When you stop any one segment of the market," it affects the entire market, says Beth Peerce, president of the California Association of Realtors.
Taxpayer subsidy

Opponents say it's unfair to ask taxpayers to subsidize million-dollar homes and that it's time to wean the market from government support.

"The only way that we are going to be able to eliminate Fannie Mae and Freddie Mac is to allow the private sector to come back in and securitize mortgages. Today that is completely moribund. Over 90 percent of mortgages are going through Fannie Mae, Freddie Mac or FHA," says Peter Wallison, a senior fellow with the American Enterprise Institute.

As long as that continues, "the private sector will not come in. Nobody wants to compete with the government. The only way we can begin to get the private sector interested is to reduce the conforming loan limits to create some space that is not occupied by the government."

On Oct. 20, the Senate voted 60-39 to include a measure to restore the loan limits in an appropriations bill that will fund the transportation and housing and urban development departments next year. The House had previously decided not to include it in its version of the appropriations bill.

A conference committee made up of House and Senate members is supposed to decide by Friday whether to include it in the final appropriations bill, which is almost certain to pass.

If the loan provision is included, it could take effect as early as Friday, although it would take a while before lenders could resume making government-guaranteed loans up to $729,750.

Until last week, Mills was pretty sure the mortgage provision would be enacted because the House would not get to vote on it independently, and the main opponents from the House are not on the conference committee.

But, he says, "there has been a lot of pushback" from conservative House members and their allies. "The Club for Growth has scored it as a key vote," he says.
Only in high-cost areas

The higher limits apply only in high-cost counties. In most parts of the country, the limit is $417,000 on Fannie and Freddie loans. FHA loan limits vary by county and range from $271,050 to $625,500. (These are the limits for one-unit properties.)

Mills is hearing about a compromise that would leave the existing limits but allow the limit on FHA loans in moderately high cost areas to go up about 10 percent, but still not above $625,500.

Mills still thinks Congress will raise the limit to $729,750 this week, but if it doesn't, it will get much harder to raise it in the future. "The longer you go with the lower loan limits, the more unlikely it becomes," he says.

More importantly, the fight to restore it to $729,750 "is a huge sign that government support of the mortgage market is not going away anytime soon and we are likely to see this go on for years."

Net Worth runs Tuesdays, Thursdays and Sundays. E-mail Kathleen Pender at kpender@sfchronicle.com. Tweeting @kathpender.
 

Congress may restore home-loan limit to $729,750
By Kathleen Pender, SF Chronicle

Congress will decide this week whether to reinstate the limit on government-backed home loans in high-cost areas to $729,750. The so-called conforming-loan limit dropped to $625,500 on Oct. 1.

Although the odds of passage have fallen in the past week, FBR Capital Markets analyst Edward Mills says they are still better than 50-50.

The bill would let Fannie Mae, Freddie Mac and the Federal Housing Administration purchase loans up to $729,750 in about 670 counties with high home prices, including most of the Bay Area, through December 2013. That was the limit in effect for several years until Oct. 1, when it dropped to $625,500.

To offset the potential cost to taxpayers, the bill would impose a new "premium loan fee" on mortgages between these two amounts, which would increase the interest rate on these loans by 0.15 percentage point.

Although borrowers today can still get loans above the Fannie/Freddie/FHA limit, the rate is somewhat higher and they generally must put down at least 20 percent.

Real estate agents say the lower limits will hinder the sale of homes in the $800,000 to $1.2 million range, which will have a ripple effect if people who own or would like to buy those homes can't move. "When you stop any one segment of the market," it affects the entire market, says Beth Peerce, president of the California Association of Realtors.
Taxpayer subsidy

Opponents say it's unfair to ask taxpayers to subsidize million-dollar homes and that it's time to wean the market from government support.

"The only way that we are going to be able to eliminate Fannie Mae and Freddie Mac is to allow the private sector to come back in and securitize mortgages. Today that is completely moribund. Over 90 percent of mortgages are going through Fannie Mae, Freddie Mac or FHA," says Peter Wallison, a senior fellow with the American Enterprise Institute.

As long as that continues, "the private sector will not come in. Nobody wants to compete with the government. The only way we can begin to get the private sector interested is to reduce the conforming loan limits to create some space that is not occupied by the government."

On Oct. 20, the Senate voted 60-39 to include a measure to restore the loan limits in an appropriations bill that will fund the transportation and housing and urban development departments next year. The House had previously decided not to include it in its version of the appropriations bill.

A conference committee made up of House and Senate members is supposed to decide by Friday whether to include it in the final appropriations bill, which is almost certain to pass.

If the loan provision is included, it could take effect as early as Friday, although it would take a while before lenders could resume making government-guaranteed loans up to $729,750.

Until last week, Mills was pretty sure the mortgage provision would be enacted because the House would not get to vote on it independently, and the main opponents from the House are not on the conference committee.

But, he says, "there has been a lot of pushback" from conservative House members and their allies. "The Club for Growth has scored it as a key vote," he says.
Only in high-cost areas

The higher limits apply only in high-cost counties. In most parts of the country, the limit is $417,000 on Fannie and Freddie loans. FHA loan limits vary by county and range from $271,050 to $625,500. (These are the limits for one-unit properties.)

Mills is hearing about a compromise that would leave the existing limits but allow the limit on FHA loans in moderately high cost areas to go up about 10 percent, but still not above $625,500.

Mills still thinks Congress will raise the limit to $729,750 this week, but if it doesn't, it will get much harder to raise it in the future. "The longer you go with the lower loan limits, the more unlikely it becomes," he says.

More importantly, the fight to restore it to $729,750 "is a huge sign that government support of the mortgage market is not going away anytime soon and we are likely to see this go on for years."

Net Worth runs Tuesdays, Thursdays and Sundays. E-mail Kathleen Pender at kpender@sfchronicle.com. Tweeting @kathpender.
 

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License number 00685309
NMLS number 338105
Equal Housing Lender
Licensed by the California Bureau of Real Estate
License number 00685309
NMLS number 338105
Equal Housing Lender