The conforming loan limit — the maximum-sized loan backed by government-sponsored mortgage repurchasers Fannie Mae and Freddie Mac — won’t be reduced to reflect a decline in home prices, but is likely to stay at $417,000 in 2007.

That’s according to James Lockhart, director of the Office of Federal Housing Enterprise Oversight, which oversees the government-sponsored entity’s financial soundness.

OFHEO uses a survey conducted by the Federal Housing Finance Board (FHFB) to set the conforming loan limit, comparing the average home price in October to the previous year.

If the October 2006 average home price is less than that of October 2005, the current conforming loan limit — $417,000 in most parts of the country — will be left in place, Lockhart said.

Lockhart said a decline in the average home price is likely in October, because FHFB’s survey showed a 3.1 percent decrease in September. But OFHEO will postpone any corresponding decreases in the conforming loan limit to 2008, he said.

“If house prices fall, loan limits should reflect that, but we need to ensure an orderly and transparent process for any downward adjustment,” Lockhart said. “We want to make sure that guidance exists to avoid disrupting the end-of-the-year pipeline of mortgages or the market for mortgage-backed securities.”

The home-price numbers for October won’t be released until Nov. 28, but home buyers and lenders are making decisions today that could be affected by the conforming loan limit that’s adopted in January, so Lockhart said OFHEO is clarifying the process now.

If the average home price in October 2006 were to go up, the maximum conforming limits would be adjusted upward by the percentage increase in price, he said. 

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