The conforming loan limit for mortgages purchased by Fannie Mae and Freddie Mac will remain at $417,000 next year, while debate continues over whether it will be lowered in 2009 to reflect falling home prices.
The Office of Federal Housing Enterprise Oversight (OFHEO) determines the conforming loan limit according to the average home price as reported each November by the Federal Housing Finance Board (FHFB).
OFHEO today followed through on a previous promise to leave the conforming loan limit unchanged in 2008, despite today’s announcement by FHFB that the average U.S. house price fell 3.49 percent in 2007, to $295,573.
“While the house-price survey data used in determining the conforming loan limit show a decline over the past year, as previously announced and consistent with the proposed new conforming loan limit guidance, the level will remain at $417,000 for the third straight year,” OFHEO Director James Lockhart said in a press release.
FHFB calculated that prices fell 0.16 percent in 2006, which OFHEO determined was a small enough decline to allow a corresponding adjustment in the conforming loan limit to be postponed. That means there has now been a cumulative two-year decline in average home price of 3.65 percent without an adjustment to the conforming loan limit.
In October, OFHEO said it would leave the conforming loan limit at $417,000 in 2008, no matter how drastically prices declined in 2007. But if cumulative home-price declines in 2006, 2007 and 2008 exceeded 3 percent, the limit would be adjusted accordingly in 2009, OFHEO proposed.
By looking at cumulative price declines over a three-year period, OFHEO left open the possibility that any reduction in the conforming loan limit could be lessened or eliminated altogether if home prices rebound in 2008. But industry groups representing lenders, home builders and Realtors have objected to the plan, questioning whether OFHEO has the legal authority to reduce the conforming loan limit.
OFHEO initially put forward the proposal on June 20, and published revised procedures for calculating the conforming loan limit on Oct. 22. The comment period on the revised procedures has closed and OFHEO said it is reviewing comments received.
Because investors have shunned the secondary market for “jumbo loans” that exceed the conforming loan limit, some lawmakers want to raise the conforming loan limit to allow Fannie and Freddie to play a greater role in purchasing or guaranteeing such loans.
Although OFHEO recognizes Alaska, Hawaii, Guam and the U.S. Virgin Islands as “high-cost” areas with higher celings on the conforming loan limit, lawmakers should mandate similar regional adjustments for states like California, where the median home price is more than $568,000, the California Association of Realtors said in a statement.
A bill approved by the House in May, HR 1427, would allow Fannie and Freddie to securitize loans up to $625,000 in areas where the median home price exceeds the conforming loan limit.
Although Bush administration officials have said they might go along with allowing Fannie and Freddie to guarantee loans that exceed the $417,000 conforming loan limit on a temporary basis, they object to allowing the mortgage repurchasers holding such loans in their investment portfolios.