A $150 billion economic stimulus package unveiled by President Bush Friday doesn’t address a top priority of the National Association of Realtors — raising the $417,000 conforming loan limit to allow Fannie Mae and Freddie Mac to purchase "jumbo" loans.
The president’s plan to stimulate economic growth would reportedly rely on tax cuts and incentives for individuals and businesses, with about $100 billion in relief such as tax rebates targeted to families and individuals.
Although the president today renewed his calls for Congress to pass legislation modernizing Federal Housing Administration loan guarantee programs, he announced no new initiatives specifically targeted at reviving housing markets or mortgage lending.
Earlier this week, the Treasury Department reiterated the administration’s existing policy on the conforming loan limit: An increase will be permitted only when Congress passes legislation overhauling oversight of troubled mortgage repurchasers Fannie and Freddie.
Eight months ago, the House of Representatives passed a bill that would do just that. Approved by the House May 22 in a 313-104 vote, HR 1427, the Federal Housing Finance Reform Act of 2007, would strengthen oversight of the government-sponsored enterprises (GSEs) by creating an independent agency with powers similar to those of a bank regulator.
But disagreements over a number of issues — including caps on Fannie and Freddie’s $1.5 trillion loan portfolios — have long been roadblocks to passage of similar legislation in the Senate, where a companion bill to HR 1427 has yet to even be introduced.
HR 1427 would give Fannie and Freddie the power to guarantee and securitize loans of up to $625,000 in high-cost housing markets, but not hold them in their own investment portfolios. New York Democrat Sen. Charles Schumer introduced a bill in September, S 2036, that would create a one-year window for the GSEs to purchase such loans to hold in their portfolios.
The Office of Federal Housing Enterprise Oversight, which supervises Fannie and Freddie, recently issued a report analyzing the potential impacts of those bills if they were to become law. OFHEO concluded that while raising the conforming loan limit might lower interest rates some borrowers pay for jumbo loans, it might also use up capital the GSEs could otherwise use to support the purchase of a larger number of smaller loans.
The newly eligible loans might be riskier than those now purchased by Freddie and Fannie, and the GSEs would have to charge higher fees to compensate for the risk.
House and Senate Democrats have introduced other bills — HR 3838 and S 2169 — that would temporarily raise the limits on Fannie’s and Freddie’s loan portfolios by 10 percent. Supporters say that would allow the GSEs to refinance $125 billion in subprime loans in a six-month window (see Inman News story).
So far, the Bush administration’s efforts to revive the housing market have centered on two areas: FHASecure, a new FHA loan guarantee program that allows some delinquent borrowers with adjustable-rate mortgages to refinance into fixed-rate loans, and the voluntary "HOPE NOW" initiative in which loan servicers are attempting to reach out to troubled borrowers and, where possible, refinance or restructure their loans rather than foreclosing on their homes.
Critics say the new FHASecure loan program and HOPE NOW efforts won’t help many of the 1.8 million homeowners facing interest-rate resets this year and next, and that falling home prices will make it harder for many borrowers to refinance.
A report issued this week by the Mortgage Bankers Association estimated that loan servicers were able to modify the terms of 54,000 loans during the third quarter of 2007, and established formal repayment plans with another 183,000 mortgage borrowers. But the report found that foreclosure actions were started on far more loans — approximately 384,000 — although many of those homes were not owner-occupied.
The National Association of Realtors Thursday said that any stimulus package must include an increase in the conforming loan limit, and urged the president and Congress to pass an FHA modernization bill.
Raising the conforming loan limit to $625,000 would reduce the supply of homes on the market by one to one-and-a-half months, NAR said in a statement, strengthen home prices by 2 to 3 percentage points, and increase economic activity by $42 billion. NAR claimed that increasing conforming loan limits could help reduce foreclosures by 140,000 to 210,000 and result in an additional 348,000 home sales.
"We believe that any stimulus package must address housing issues and increasing the conforming loan limits for these two government-sponsored enterprises," NAR President Dick Gaylord said in a statement. "The increase in loan limits would not only improve liquidity in the mortgage marketplace, but also boost home buyers’ confidence levels, resulting in increased sales and economic activity."
Gaylord, a broker with RE/MAX Real Estate Specialists in Long Beach, Calif., did not respond to a request for comment today.
The National Association of Home Builders, which has backed the administration’s insistence that GSE reform bill be passed before raising the conforming loan limit, issued a statement today praising the proposed stimulus package, but said "any final package should address housing as a key component to help strengthen the economy."
NAHB President Brian Catalde called on the Federal Reserve to "move aggressively" and cut short-term interest rates at a meeting scheduled for the end of the month.
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