Having already received approval from federal regulators, both Fannie Mae and Freddie Mac will proceed to fund higher-priced mortgages throughout the first half of 2014. The move is in contrast to President Barack Obama’s recent request to have the Federal Housing Finance Agency (FHFA) lower the limits by the end of this year in order to shrink the government’s role in the market. The FHFA, which has overseen the two mortgage giants since 2008, does not believe the timing is right to lower the limits on mortgages. The agency will wait until the middle of next year before changes are made.
According to Ed DeMarco, the FHFA’s acting director, “We are not making a change there in the immediate term. I recognize and understand that the industry is very busy right now making implementation of other regulations that take effect the first of next year, and that’s enough.”
The regulations DeMarco referenced are directly correlated to the moves being made by the Consumer Financial Protection Bureau. Their new mortgage regulations will require lenders to prove a borrower has the ability to repay a respective loan. Otherwise known as the “Qualified Mortgage rule,” this move will take effect on the first of January. The impending deadline, however, has lenders scrambling to make sure they are able to comply with the new rules set forth.
In an attempt to reduce the government’s role in lending, the Obama administration has supported the idea of reducing loan limits at both Fannie Mae and Freddie Mac. Subsequently, the move will assist in putting private capital back in the hands of mortgage businesses.
“HUD and FHFA should closely examine using their existing authorities to reduce loan limits further consistent with the pace of the recovery, market developments, and the Administration’s principles and transition plan for housing finance reform,” an August White House statement said.
Limits on mortgages in areas with a higher cost of living are hovering around $729,750, the same as in 2008 when private capital all but disappeared from the market. However, as the market demonstrated a propensity for recovery, limits were briefly set at $625,500 in 2011. While mortgage limits returned to $729,750 in 2013, they are projected to drop once again.
Some housing industry associations, particularly the National Association of Realtors (NAR), have been warning against a drop in mortgage limitations. In a letter to members of Congress, the NAR argues “while high cost loans make up a low percentage of all loans, it is simply a matter of equity for those living in high-cost markets where many millions of families live. Without higher loan limits in these areas, many hard-working, middle-income families will be denied homeownership just because they happen to reside in an area of high home prices.”
The letter continued to say that “lowering loan limits also would … create confusion and uncertainty for potential borrowers and lenders, especially in the months leading up to any reduction. There is already turbulence enough in the regulatory environment for mortgage lending.”