DeMarco adamant on reducing Fannie, Freddie loan limits

by Ryan Smith28 Oct 2013

The acting head of the Federal Housing Finance Agency continues to insist on lowering maximum loan limits for Fannie Mae and Freddie Mac despite opposition from industry groups and lawmakers.

Speaking at the Mortgage Bankers Association's annual conference in Washington, D.C., Monday, FHFA Acting Director Ed DeMarco said the agency would probably announce loan limit reductions in November.

Currently, Fannie and Freddie back mortgages with balances up to $417,000 in most of the country and $625,000 in more expensive markets. DeMarco has been making noises about lowering the loan limits since September, but he’s received massive pushback from within the industry and the government, especially with more stringent regulations hitting the market in January.

"As you probably know, last week I stated that understood the potential timing issues of such a change given the other regulatory changes," DeMarco said Monday. "...FHFA will give at least six months' notice of any change, and any change will be measured and gradual so as not to disrupt markets."

More than a dozen industry groups have gone on record opposing the plan. Indeed, groups representing real-estate agents, builders, mortgage bankers, mortgage insurers and title companies signed an Oct. 8 joint letter questioning whether FHFA had the authority to reduce the loan limits.

“We believe such changes at this time would have a very disruptive impact on the availability of affordable housing credit, on our housing recovery and our economy as a whole. Not only is lowering loan limits bad for housing, we question to what extent FHFA’s authority would allow for such a change,” the letter stated.

DeMarco maintains the FHFA has the authority to reduce the loan limits without congressional approval. Several members of the House of Representatives, however, beg to differ.

“Congress did not give FHFA the authority to reduce the loan limits. In fact, we included language in statute explicitly stating that the loan limits could not be reduced,” Rep. Gary G. Miller (R-Calif.), said Oct. 10. Miller was one of 66 House members from both parties who signed a letter to DeMarco warning him to leave the limits alone.

“Housing prices are on the rise, but lowering the loan limits could put the housing market’s fragile recovery at risk. This is not consistent with FHFA’s role as conservator,” Miller said. “Lowering the limits would place taxpayers at greater risk due to a decline in home values, ultimately harming (Fannie and Freddie’s) financial positions.”

But DeMarco sees lowering the limits as a first step to redefining the role of the government-sponsored enterprises.

"What seems clear is that Fannie Mae and Freddie Mac will cease to operate in their current form at some future date," he said. "With and uncertain future and a general desire for private capital to reenter the market, the overarching goal is that the role of the enterprises should be reduced over time."