Industry News

Industry protests potential cut in conforming loan limit

Reduction tied to falling home prices proposed for 2009

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Realtors, lenders and home builders are protesting a proposed method for calculating the conforming loan limit, saying federal regulators lack the legal authority to reduce the limit if housing prices decline. The conforming loan limit determines the maximum size mortgage eligible for purchase by Fannie Mae and Freddie Mac, and is also used to set lower limits for FHA and VA loan guarantees. The Office of Federal Housing Enterprise Oversight (OFHEO) proposes leaving the conforming loan limit at $417,000 in 2008, regardless of how steeply housing prices fall in 2007. But in 2009, OFHEO wants to mandate that Fannie and Freddie lower the conforming loan limit if the cumulative reduction in average home price in 2006, 2007 and 2008 exceeds 1 percent. The conforming loan limit is tied to the average home price as reported in November by the Federal Housing Finance Board, which said prices fell .16 percent in 2006. Most industry groups and economists expect average prices to drop more pre...