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Conforming loan limit won’t fall with home prices

OFHEO scraps plan to require reductions
Published on Mar 31, 2008

In a reversal of past policy, federal regulators say they won't lower the $417,000 conforming loan limit to keep it in line with falling home prices. Adopting a stance taken by Fannie Mae and Freddie Mac during the housing downturn of the early 1990s, the Office of Federal Housing Enterprise Oversight has ruled that the conforming loan limit will move in only one direction: up. Instead of lowering loan limits when housing prices fall, OFHEO says, Fannie and Freddie will be permitted to instead restrict increases in the conforming loan limit when housing markets recover. When prices begin rising again after a downturn, the conforming loan limit will not increase until previous losses have been recouped. Permanently deferring decreases in the limit by allowing them to offset increases "will ensure that the conforming loan limit remains, as contemplated, a measure tied to housing prices," OFHEO said in its final guidance. "Over time, both increases and decreas...

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