The country's largest trade group is challenging possible plans by the Federal Housing Finance Agency to arbitrarily lower the conforming loan limit in an attempt to bring private capital back to the mortgage market.
The FHFA hasn't announced its intentions publically, but the mortgage rumor mill has it that the ceiling on the dollar value of loans that can be purchased or securitized by Fannie Mae and Freddie Mac will be cut sometime in the next few weeks, if not the next few days.
But the National Association of Realtors, a million-strong organization which represents numerous real estate professionals, has said, in effect, "Not so fast!"?
In a letter to acting FHFA director Edward DeMarco, NAR president Gary Thomas says "statutory provisions" prohibit reductions in the limits—currently up to $625,500 in high-cost areas and $417,000 in most other places.
"You have not yet made public your legal theory for overriding the statutory prohibition against reducing conforming loan limits, but we have serious legal questions about whether you have this authority," the Orange County, Calif., real estate broker wrote.
Changes in the loan limits for the subsequent year are typically announced during Thanksgiving week. Despite gossip that an announcement that the ceilings will be clipped soon, if not sooner, the FHFA has remained silent on the topic.
NAR is the first and only housing group so far to raise an objection to lower loan limits. Others believe the FHFA has the authority to cut the limits, but as recently as late last year, the agency reiterated that it would follow the prescribed formula for raising or lowering the ceiling.
At the
“Loan limits are going to be lowered,” Stevens told about 1,000 New England mortgage professionals. “Not by much, but they are going to be lowered.”
In the NAR letter, Thomas said the agency, which is the conservator for the two troubled secondary mortgage market companies, should follow the law, in this case, the formula for setting the limits as laid out in the Housing and Economic Recovery Act of 2008.
"If you had the authority to ignore the prohibition against reducing loan limits, what would prevent you from making other fundamental changes?" says Thomas.
"We believe Congress did not intend to allow you to make any fundamental changes to the statutory structure of the organizations, other than those compelled by the nature and goals of the conservatorship."
But even if the FHFA had the authority, to exercise it would be "bad policy," the NAR leader protested.
"An arbitrary reduction in existing limits, in the hope it will encourage more private sector lending, is a social policy experiment that risks dampening or reversing the ongoing recovery in the housing market and the economy as a whole." he said. "It also risks denying homeownership to many credit-worthy homeowners who are not in a position to meet the extremely risk-averse standards of the current jumbo lending market."
He went on: "We agree that more private sector participation is key to a stronger and more balanced housing finance market. Homebuyers who are good credit risks but who do not qualify for a loan meeting the standards of the enterprises, FHA, or other federal programs should have other options. The question is whether higher costs for loans purchased or guaranteed by the enterprises will have the desired effect of returning private sector back to the mortgage market."
Lew Sichelman is an independent journalist who has been covering the housing and mortgage markets for more than 40 years.
