Depositories could easily finance the demand for jumbo mortgages if Congress decides to substantially reduce GSE loan limits, according to a conservative think tank analyst.
The current size of the private jumbo market is roughly $90 billion based on Fannie Mae and Freddie Mac being able to purchase mortgages with loan balances of up to $729,750, according to Mark Calabria, director of financial regulation studies at the Cato Institute.
The GSE loan limit is slated to drop to $625,500 on Oct. 1 and Republican lawmakers are considering a further reduction.
"Reducing the loan limit to $500,000 would increase the size of the jumbo market to around $180 billion," Calabria told a House Financial Services subcommittee on Wednesday afternoon.
The former banking committee aide to Sen. Richard Shelby, R-Ala., noted that banks have the excess reserves and equity to fund jumbos that would be out of the reach of the government-sponsored enterprises.
"It would seem that insured depositories would have no trouble absorbing a major increase in the jumbo market," Calabria testified.
