loan limits

Senate backs plan to help Americans buy homes

first-time-home-buyers-7 WASHINGTON — The Senate on Thursday backed a measure to help bolster the housing market by making it easier for people to afford a home in wealthier neighborhoods.

The Senate voted 60-38 to attach the proposal to a spending bill that the chamber will consider later this year. It would restore the size of the loans the government buys or insures to a maximum of $729,500 from the previous cap of $625,500.

The cap, known as the "conforming loan limit," determines the maximum size of loans the Federal Housing Administration and the government’s mortgage buyers, Fannie Mae and Freddie Mac, can buy or guarantee.

The higher loan limit expired at the end of September and was touted as one of the Obama administration’s short-term plans to shrink the government’s role in the mortgage market.

But with the housing sector hurting the country’s economic recovery, lawmakers and the administration are looking for solutions.

"Getting our housing market moving again is one of the most important tasks facing the country," said Robert Menendez, a Democrat from New Jersey who introduced the bill amendment.

The majority of Senators agreed that the lower loan limit was making a weak housing market even weaker. "It makes it harder for middle class homebuyers to get credit when credit is tight," Menendez said.

It is unclear what will ultimately happen to the provision, given the deep divisions within the Democratic-led Senate and Republican-controlled House of Representatives. It would have to pass both chambers before President Barack Obama, a Democrat, could sign it into law.

Republican Senator Richard Shelby said the measure would help homebuyers who "do not need federal subsidies." "This is not a good use of taxpayer dollars," he said.

Republicans in the House have been trying to quickly unwind Fannie Mae and Freddie Mac, which were seized by the government at the height of the financial crisis and now back the bulk of the mortgage market. But the administration has cautioned against removing the government’s support before the housing sector starts to stabilize.

WE NEED CONGRESS TO EXTEND LOAN LIMITS: Home Builders

With the Oct. 1 deadline rapidly approaching when the conforming loan limits for Fannie Mae, Freddie Mac and the Federal Housing Administration (FHA) will be lowered, the National Association of Home Builders (NAHB) recently called on Congress to move swiftly to extend the current loan limits to prevent further damage to the already fragile housing market and lackluster economy.

“Congress must act now to prevent the loan limits from reverting to lower levels,” says NAHB Chairman Bob Nielsen, a home builder from Reno, Nev. “A drop in mortgage loan limits would reduce housing demand, and place downward pressure on home prices in major markets. This would exacerbate the current housing downturn, trigger more foreclosures, impede job growth and endanger the fragile economic recovery.”

As a result, NAHB is engaged in a major grassroots push and association members are being urged to contact their members of Congress and seek their support for immediate efforts to extend the current loan limits.

If Congress fails to act, the loan limits will revert to the lower levels for high-cost areas established under the Housing and Economic Recovery Act of 2008.

The national ceiling for mortgages securitized by Fannie Mae and Freddie Mac or insured by the FHA, would drop from $729,750 to $625,500 and the formula for establishing area loan limits would become more restrictive, producing decreases for areas in addition to those currently bound by the national ceiling.

Loan limits are based on a percentage of median area home prices. A recent NAHB study found that if the limits are allowed to revert to 2008 levels, millions of homes would no longer be eligible for Fannie Mae, Freddie Mac and FHA funding and would have to be financed with mortgages requiring higher interest rates, fees and down payments and more stringent credit standards.

While the changes would affect only a minority of counties in the nation, those areas represent large concentrations of homes and population. The counties affected by the changes in the FHA limits contain nearly 60 percent of all owner-occupied homes; the counties affected by the Fannie-Freddie changes contain nearly 30 percent of all owner-occupied homes.

Bipartisan legislation to extend the current federal home loan guarantees is pending in both chambers of Congress, but with the Oct. 1 deadline looming, time is running short.

“Credit conditions for home builders and home buyers are already extremely tight,” says Nielsen. “Reducing the loan limits would further restrict overall mortgage liquidity and make it even more difficult for potential buyers to purchase a home. Congress must not allow this to happen.”