Lawmakers haven’t given up on the idea of restoring emergency loan limits for government-backed mortgages in high-cost housing markets to levels in place during much of the housing downturn, with a handful of Republicans joining Senate Democrats in backing such a move.
In a 60-38 vote Thursday, the Senate approved an amendment to a spending bill that would restore the $729,750 ceiling that was first put in place in 2008 to allow Fannie Mae, Freddie Mac and the Federal Housing Administration to back what were previously considered "jumbo" mortgages not eligible for government support.
In addition to propping up the ceiling, which dropped to $625,500 on Oct. 1, the Senate amendment would also restore through 2013 the formula in use during much of the downturn for determining the upper loan limit in high-cost housing markets.
For much of the last four years, the so-called "jumbo conforming" loan limit was determined by multiplying the median home price in high-cost markets by 125 percent, instead of 115 percent today.
It remains to be seen whether the Republican-controlled House will take up the cause of higher loan limits. Although the housing industry lobbied hard to preserve the higher limit, bills that would have extended it failed to reach the House or Senate floor before it expired.
To appeal to fiscal conservatives, the Senate amendment would impose a new loan fee of 15 basis points a year on unpaid principal balance for the life of the mortgage, which backers said would raise $300 million in revenue. A basis point is a hundredth of a percent, so a 15 basis point fee would amount to $750 on a loan with a $500,000 balance.
Although all 38 votes against the Senate amendment were cast by Republicans, eight — including longtime National Association of Realtors ally Sen. Johnny Isakson, R-Ga — supported the measure.
The Obama administration announced in February that it wanted to see the jumbo conforming loan limit step down as scheduled to $625,500 this year as part of a plan to gradually reduce the government’s role in mortgage lending. Since the collapse of the market for mortgage-backed securities that lack government backing in 2007, Fannie, Freddie and the Federal Housing Administration have stood behind about 9 in 10 mortgages.
Fannie and Freddie’s regulator, the Federal Housing Finance Agency, has estimated that the lower limits would have applied to less then 5 percent of loans guaranteed by the mortgage giants in 2010, or about 50,000 mortgages.
Similarly, the Department of Housing and Urban Development has calculated that about 3 percent of the loans insured by FHA in 2010 — 33,300 mortgages — would have been ineligible under the new limits.
But some markets will be hit harder than others, and lawmakers have had doubts before about whether the private sector is ready to handle the jumbo loan market on its own.
In February 2008, with private investors who fund most mortgage lending shunning mortgage-backed securities that lacked government guarantees, Congress passed the Economic Stimulus Act, which included provisions that allowed Fannie, Freddie and FHA to back loans of up to 125 percent of the median home price in high-cost markets, with a cap of $729,750.
In the lower 48 states, Fannie and Freddie had previously been limited to buying or guaranteeing mortgages of no more than $417,000. FHA was allowed to insure loans of up to 95 percent of median home price, with a ceiling of $362,790.
On Jan. 1, 2009, a sunset provision brought the jumbo conforming limit back down to where it is today — 115 percent of median home price with a cap of $625,500. But Congress quickly restored the higher jumbo conforming limit as part of a $787 billion economic stimulus bill the following month.
Each time the formula changes, limits in individual markets have to be recalculated and lenders have to reconfigure their automated underwriting systems. Most lenders implemented the latest reduction in jumbo conforming loan limits weeks before the Oct. 1 cutoff for Fannie, Freddie, and FHA purchases and guarantees.