The federal regulator of Fannie Mae and Freddie Mac is requesting public input on a proposed 4 percent reduction in the conforming loan limit, which has stood at $417,000 since before the housing bust despite falling home prices.

The Federal Housing Finance Agency is proposing to reduce the conforming loan limit to $400,000 as soon as next October. The loan ceiling for Fannie and Freddie in the priciest markets would be cut from $625,500 to $600,000.

FHFA characterized the proposal as part of a broader, gradual decrease in loan limits, to further a goal of shrinking Fannie and Freddie’s market share by reducing their role at the high end of the market.

The conforming loan limit is adjusted upward when prices rise, but hasn’t been adjusted downward. Bill McBride, author of the blog Calculated Risk, has estimated that the conforming loan limit would be around $360,000 if it had been allowed to fall with home prices during the downturn.

Real estate industry groups have objected to any reduction in the conforming loan limit, and questioned FHFA’s legal authority to impose reductions without direction from lawmakers.

The agency today published an impact analysis of the planned reductions, and outline its position that it has the legal authority to make them.

Had the proposed limits been in force last year, Fannie and Freddie would have been barred from purchasing about 170,000 of the mortgages they acquired in 2012, or 2.9 percent of total acquisitions. About 50,000 purchase mortgages would have exceeded the lower limits proposed today.

But because many homebuyers would be able to make larger down payments in order to qualify for a conforming loan — or obtain a “jumbo” loan not backed by Fannie and Freddie — higher loan limits might derail only 13,000 purchase loans, the FHFA analysis concluded. Source: fhfa.gov

Show Comments Hide Comments

Comments

Sign up for Inman’s Morning Headlines
What you need to know to start your day with all the latest industry developments
Success!
Thank you for subscribing to Morning Headlines.
Back to top
×
Log in
If you created your account with Google or Facebook
Don't have an account?
Forgot your password?
No Problem

Simply enter the email address you used to create your account and click "Reset Password". You will receive additional instructions via email.

Forgot your username? If so please contact customer support at (510) 658-9252

Password Reset Confirmation

Password Reset Instructions have been sent to

Subscribe to The Weekender
Get the week's leading headlines delivered straight to your inbox.
Top headlines from around the real estate industry. Breaking news as it happens.
15 stories covering tech, special reports, video and opinion.
Unique features from hacker profiles to portal watch and video interviews.
Unique features from hacker profiles to portal watch and video interviews.
It looks like you’re already a Select Member!
To subscribe to exclusive newsletters, visit your email preferences in the account settings.
Up-to-the-minute news and interviews in your inbox, ticket discounts for Inman events and more
1-Step CheckoutPay with a credit card
By continuing, you agree to Inman’s Terms of Use and Privacy Policy.

You will be charged . Your subscription will automatically renew for on . For more details on our payment terms and how to cancel, click here.

Interested in a group subscription?
Finish setting up your subscription