WASHINGTON—Congress passed another extension on the $729,750 maximum GSE loan limit cap before leaving town for the November elections. The bill also extends the current maximum loan limit for the Home Equity Conversion Mortgage Program.
The timely approval is a relief for lenders who were concerned about possible disruptions in the mortgage market, particularly the “conventional jumbo market.”
The extension expires at the end of September 2011.
Lenders should enjoy the next 12 months, but greatly fear they may’ve seen their last extension.
Republicans riding the Tea Party Express hope to win big on Nov. 2 and take control of the House of Representatives and possibly the Senate.
Republican lawmakers in the House and Senate are already eager to cut Fannie Mae and Freddie Mac down to size. Lowering the loan limit is an easy way to shrink the GSEs.
Sen. John McCain, R-Ariz., who is expected to win re-election this fall, wanted to strip the loan limit extension out of a must-pass measure that will continue to fund government operations until Dec. 3.
“To date, the American taxpayer has spent $160 billion to bail out Fannie Mae and Freddie Mac, and the experts estimate that those costs could rise to over a trillion dollars. So why in the world would we provide these failing institutions with the authority to continue to buy these high-dollar mortgages? It makes no sense,” McCain said.
The Senate passed the temporary funding bill known as a continuing resolution by a 69-30 vote. The House passed the CR by a relatively narrow margin of 228-194.
Without an extension, the maximum loan limit for Fannie, Freddie and Federal Housing Administration single-family loans would have fallen to $625,000 on Jan. 1.
The Mortgage Bankers Association and other financial service trade groups pushed for the loan limit extension to prevent disruptions in the mortgage market. The industry believes that waiting for Congress to return in November for a lame-duck session would be asking for trouble.
By then it would be difficult for lenders to make loan commitments and keep credit flowing for jumbo loans between $625,000 and $729,750.
As passed, the CR also extends the $625,500 maximum loan limit for FHA-insured reverse mortgages and provides an additional $20 billion loan commitment authority for the FHA multifamily loan program.
“Extending the existing limits is essential to helping borrowers continue to have access to affordable long-term, fixed-rate mortgage credit in today’s struggling economy,” MBA chairman Robert Story said.
Still, fear is great that the industry has seen its last extension of the $729,750 loan limit. By next September, lenders might be adjusting to a $625,000 maximum, or even a lower number.
