Conflicting loan limit

The Bush administration appears willing to go along with an agreement by House Democrats and Republicans to boost the conforming loan limit.

But while Fannie Mae and Freddie Mac will apparently be allowed to romp in what is now jumbo loan territory, it's unclear exactly what the ground rules will be, or whether FHA loan guarantee programs will be expanded as well.

In announcing a breakthrough in negotiations on a $150 billion economic stimulus package Thursday, Speaker of the House Rep. Nancy Pelosi's office originally said a side agreement included a temporary, one-year increase in the conforming loan limit, from $417,000 to $625,500.

Rep. Barney Frank, D-Mass, later said the agreement would raise the conforming loan limit by up to 75 percent in some high cost markets, allowing Fannie and Freddie ("the GSEs") to guarantee or purchase mortgages of up to $729,750, or 125 percent of the median home price -- whichever is less -- until the end of the year.

The Associated Press initially reported that the agreement was between House leaders, and that the Bush administration and Senate had not signed on. A Treasury Department spokeswoman told Reuters that the administration had not changed its stance against raising the conforming loan limit until Congress passes legislation strengthening oversight of the GSEs. The White House released a fact sheet on the agreement that is silent on the issue.

But at a press conference Thursday afternoon, Treasury Secretary Henry Paulson told reporters that while he had been opposed to raising the conforming loan without a GSE reform bill, "I got run down by a bipartisan steamroller -- I mean, Republicans and Democrats reunited on this."

So the Bush administration IS playing along. Paulson said that Democrats Rep. Barney Frank and Sen. Chris Dodd promised not to get in the way of a GSE reform bill. Although the administration has now lost a key bargaining chip by agreeing to raise the conforming loan limit, the big stumbling block to GSE reform has been a separate debate over limits on growth in Fannie and Freddie's combined $1.5 trillion loan portfolios.

Further confusing the issue, however, another Bush administraton official in charge of monitoring Fannie and Freddie's financial soundness issued a statement Thursday expressing reservations about the agreement.

"We are very disappointed in the proposal to increase the conforming loan limit as we believe it is a mistake to do so in the absence of comprehensive GSE regulatory reform," said James Lockhart, director of the Office of Federal Housing Enterprise Oversight (OFHEO).

But Lockhart said OFHEO is ready to work with Fannie and Freddie "to ensure that any increase in the conforming loan limit moves through their rigorous new product approval process quickly and has appropriate risk management policies and capital in place."

Another reason for the confusion, perhaps, is that Senate leaders must still sign off on the deal. In the absence of official pronouncements, a number of news media outlets -- including Inman News -- put out some conflicting reports. We went to press with the information from Pelosi's office and an initial AP report that House leaders had agreed in principal on a temporary raise in the conforming loan limit to $625,000.

Dow-Jones Newswires has reported the agreement would raise the conforming loan limit to $625,000 and allow FHA to back loans up to $725,000.  An AP report Thursday afternoon put the limit for Fannie, Freddie and FHA loan guarantees at $730,000, and said that for FHA, the change would be permanent.

Wherever the numbers end up, barring some unforeseen calamity in the Senate (which has been deadlocked for years on GSE reform legislation) it's clear the conforming loan limit is headed up -- which is good news for housing industry groups like NAR, who were worried that the Bush administration's $150 billion economic stimulus plan originally included no new housing initiatives.

One potential roadblock: Sen. Dodd, who as chair of the Senate Banking Committee can shoulder some of the blame for the Senate's inaction on GSE reform bill, also wants to see about $30 billion for foreclosure prevention efforts in the stimulus package, which could conceivably derail Senate Majority Leader Harry Reid's timetable of putting a bill on the President's desk by Feb. 15.

And let's not forget that not everybody thinks raising the conforming loan limit is such a great idea. Some critics say Fannie and Freddie are stretched thin enough, and that letting them get into the jumbo loan game will provide an artificial crutch for home prices. But seeing that it's the economy at stake now, lawmakers are finding it easier to reach consensus on at least a few critical issues.

Next time they make a breakthrough like this, maybe they'll even get their stories straight.

UPDATE: The confusion around these numbers stems from conflicting accounts by House leaders Pelosi and Ohio Republican Rep. John Boehner. 

According to Pelosi's office, the agreement includes: "a one-year increase in Fannie Mae’s and Freddie Mac’s conforming loan limits (from $417,000 to a maximum of $729,750), and a permanent increase in the FHA loan limit from the current $367,000 up to a maximum of $729,750."

Boehner's office, on the other hand, puts it this way:

"Increase in Government Sponsored Enterprises (GSE)/Federal Housing Administration (FHA) Conforming Loan Limit: The conforming loan limits for both FHA and GSE (such as Fannie Mae and Freddie Mac) loans would be increased from $362,000 to $725,000 and from $417,000 to $625,000 respectively."  (Translation: a $625,000 conforming loan limit, and FHA guarantees on mortgages of up to $725,000).

Now, it's possible that these interpretations are both correct (if incomplete), if the agreement is to raise the conforming loan limit to $625,000 in all markets and as much as $729,750 in higher cost markets.

None of my calls and e-mails today (Friday) to Pelosi, Boehner and Treasury have shed any further light on what exactly it is they thought they'd all agreed on, but since Senate leaders have yet to weigh in, it might be premature to assume that Fannie, Freddie or FHA will back that jumbo mortgage your client needs to buy that home they've got their eye on anytime soon. 

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