When asked about such a reduction, the Federal Housing Finance Agency declined to comment.
However, the FHFA with the backing of the Obama administration is working on a proposal to reduce the GSE loan limits.
“The Federal Housing Finance Agency shares the administration’s view that a gradual reduction in loan limits is an appropriate and effective approach to reducing taxpayers’ mortgage risk exposure,” a FHFA spokesperson said.
Fannie and Freddie’s base limit (or national conforming limit) is currently $417,000. Several sources indicated that a reduction to $400,000 is being considered, which would reduce the maximum loan limit (150% of the base limit) to $600,000. The current maximum limit is $625,500.
One observer noted that the $400,000 loan limit makes sense from an operational standpoint because it would be easy for lenders to implement.
But such a reduction in the national conforming limit could also affect the loan limits on FHA-insured loans. And it would reduce the floor on Federal Housing Administration loans to $260,000 from $271,050. (The floor would become 65% of $400,000.)
The White House and FHFA want to shrink the government’s market share and make more room for private capital to enter the mortgage market.
But some industry groups are concerned that it could disrupt the purchase market and make it more difficult for first-time buyers and others to get financing.
“It would be counterproductive to make changes to the loan limits before private capital is fully engaged,” said Gary Thomas, president of the National Association of Realtors.