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Trade Groups Urge Regulator to Hold GSE Loan Limits Steady

MAR 23, 2014 4:23pm ET
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Housing and lending groups are urging the government sponsored enterprise regulator and conservator to keep the Fannie Mae and Freddie Mac loan limits where they are for now.

"As Congress considers comprehensive housing finance system reform, we strongly support maintaining the GSEs' current conforming and high-cost loan purchase limits at... $417,000 and $625,500 respectively," says a March 20 letter signed by 10 trade groups.

Last fall, the Federal Housing Finance Agency under former acting director Edward DeMarco proposed to reduce the GSE conforming loan limit to $400,000 and the high-cost loan limit to $600,000.

In December, the Senate confirmed Rep. Mel Watt, D-N.C., to be the new FHFA director and the loan limit issue has been on hold since then.

The recently released text of a promising Senate Banking Committee GSE reform bill calls for maintaining the current Fannie/Freddie loan limits.

In a separate letter to FHFA, the Consumer Mortgage Coalition (a lobbyist for big lenders) warns that reducing GSE loan limits would also reduce the availability of mortgage credit because of the qualified mortgage rule promulgated by the Consumer Financial Protection Bureau.

In the past, the GSE loan limits could be used to expand or contract Fannie and Freddie's market share, according to CMC executive director Anne Canfield.

But today, GSE loan limits are also tied to the QM rule. The QM rule allows lenders to demonstrate that they are in compliance with QM ability-to-repay underwriting standards by originating GSE-eligible loans.

So lowering the GSE conforming loan limit to $400,000 could turn a newly originated $417,000 loan into a non-GSE, non-QM loan. Lenders would be wary of making such a loan due to the litigation risk associated with non-QM loans.

The CFPB specifically granted QM status to GSE loans to ensure the QM rule would not disrupt the mortgage market and constrain credit.

CMC urges FHFA to hold off on changing GSE loan limits at this time. "After we learn how Congress will reform the GSEs; after the marketplace has seen how courts will construe the extent of liability under the ability-to-repay regulation; and after lenders react to the untested litigation risk, then revisiting the GSEs' loan limits may be more appropriate," Canfield says.

The 10 industry groups that sent the March 20 letter are: Asian Real Estate Association of America, Community Mortgage Lenders of America, Independent Community Bankers of America, Leading Builders of America, Mortgage Bankers Association, National Association of Hispanic Real Estate Professionals, National Association of Home Builders, National Association of Realtors, National Community Reinvestment Coalition and U.S. Mortgage Insurers.

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