WASHINGTON—The government has tried HAMP and various other programs to deal with the housing crisis without much success. But there is one “easy” solution that the Obama administration hasn’t tried yet, according one lender: extending the $729,750 conforming loan limit across the entire nation to all MSAs.
Currently, the $729,750 loan limit is only available in and around New York, Washington, Boston, San Francisco and a few other high-cost markets. Extending it nationwide would immediately spark refinancings and reduce borrower payments by $300 to $400 month, said John Walsh, CEO, Total Mortgage Services, Milford, Conn. He believes it also would spur home sales. “It would pump an awful lot of money back into this economy,” Walsh told NMN.
Congress recently extended the $729,750 maximum loan limit for Fannie Mae, Freddie Mac and Federal Housing Administration single-family loans until the end of September 2011. But many Republicans want to lower the loan limit as part of their plan to downsize Fannie and Freddie, which are in conservatorship and dependent on the U.S. Treasury to cover their losses.
It may seem like an “obvious solution” to Walsh, but it would be a hard sell on Capitol Hill, particularly if the GOP wins control of the House, and picks up additional seats in the Senate. The TMS CEO noted that a lot of people with high-balance loans cannot qualify for private jumbo loans because of higher underwriting and downpayment requirements. “We get several calls every day from people who want to refinance, but we can’t help them,” Walsh said. He believes it would not be that risky for Fannie and Freddie to refinance these loans. The GSEs have been providing liquidity for high-balance loans for nearly three years and their underwriting criteria will stand up in Omaha just as well as in New York. “The credit quality of loans being underwritten today is significantly better than it was when Congress first raised the limit in 2008,” he said.
Walsh considers the 13-year-old TMS, which has funded $6 billion in loans, conservative when it comes to underwriting. The company is currently funding loans in 21 states, and a few months back launched a wholesale division.
