A proposal to increase the $417,000 conforming loan limit faces an uncertain fate in the Senate, where an influential Republican is questioning the wisdom of allowing Fannie Mae and Freddie Mac to buy up or guarantee what are now considered jumbo loans.
House leaders and the Bush administration tentatively agreed last week to boost the conforming loan limit and to raise caps on FHA loan guarantee programs as part of a $150 billion economic stimulus package (see Inman News story).
It’s still unclear exactly how much the conforming loan limit was to increase under the agreement. House Republican Leader John Boehner of Ohio’s office said the agreement was to raise the conforming loan limit to $625,000, while House Speaker Nancy Pelosi said Fannie and Freddie would be allowed to purchase mortgages of up to $729,750 in high-cost areas.
Both Boehner and Pelosi issued statements saying the agreement between House leaders and the Bush administration called for Federal Housing Administration (FHA) loan guarantee programs to be expanded to cover loans of up to $725,000, up from $362,000 now.
The increase in the conforming loan limit would be temporary, expiring after one year, while the increase in FHA limits is envisioned as permanent.
But an increase in the conforming loan limit faces opposition in the Senate, where Sen. Richard Shelby, R-Ala., is sticking with the position previously held by the Bush administration: that any increase in the conforming loan limit should be tied to strengthening oversight of Fannie and Freddie (“the GSEs,” or government-sponsored entities).
The House passed a GSE reform bill in May, HR 1427, that would create an independent agency to oversee Fannie and Freddie. But passage of similar legislation in the Senate has been stymied in years past by disagreement over the separate but related issue of growth limits on Fannie’s and Freddie’s loan portfolios.
A spokesman for Shelby, the ranking Republican on the Senate Banking Committee, said he “believes that consideration of raising the conforming loan limit should be done carefully within the context of broader and meaningful GSE reform.”
In Shelby’s judgment, “doing so in the absence of such a process enables thinly capitalized entities with recent accounting problems to provide a high-risk benefit to the wealthiest Americans without any real consideration of the need to do so or of the risks it presents to the taxpayer,” a spokesman for the senator, Jonathan Graffeo, told Inman News in an e-mail.
The National Association of Realtors has estimated that raising the conforming loan limit to $625,000 would prevent 140,000 to 210,000 foreclosures and prop up home prices by 2 to 3 percentage points (see story). But critics say increasing the limit could hurt Fannie and Freddie’s mission of helping low- and moderate-income families and put them at greater financial risk.
Sen. Chris Dodd, the Connecticut Democrat who chairs the Senate Banking Committee, has promised to support passage of GSE reform legislation this year — a prime consideration in the Bush administration’s decision to get on board with a temporary increase in the conforming loan limit, Treasury Secretary Henry Paulson said Thursday.
But Dodd is also pushing for more foreclosure relief programs in the economic stimulus package, including the creation of a Federal Homeownership Preservation Corp. that would be provided with $20 billion in funding to purchase mortgages from lenders, allowing homeowners to refinance into government-backed, fixed-rate mortgages (see Inman News story).
President Bush in his State of the Union address tonight is expected to warn the Senate not to push for additional programs in the stimulus package, such as tax rebates for Social Security recipients and an extension of unemployment benefits, the Associated Press reported.
“I don’t think the Senate is going to want to derail this program,” AP quoted Paulson as saying in a CNN appearance Sunday. “And I don’t think the American people are going to be anything but impatient if we don’t enact this bipartisan agreement quickly.”
It’s unclear, however, whether Shelby or other Republicans who object to some provisions of the stimulus bill that’s eventually put forward by Senate Democrats will have the opportunity to make amendments.
The House was scheduled to vote on an economic stimulus plan Tuesday, and Senate Majority Leader Harry Reid has set a Feb. 15 timetable for putting a bill on President Bush’s desk.