Proposal To Raise Mortgage Limits Praised by MBA

Washington, DC, January 25, 2008--A proposal to raise the limits on the size of mortgage loans that can be bought by Fannie Mae and Freddie Mac has been endorsed by the Mortgage Bankers Association.

According to the proposal, the temporary limit for loans that can be bought by the government-sponsored agencies, would be $729,750, or 125% of the median house price in the area.

The current conforming loan limit is $417,000; loans larger than that are considered jumbo and aren't eligible to be financed through government-sponsored enterprises. This summer, when the private, secondary mortgage market no longer had an appetite to invest in these loans due to questions about risk, jumbo loans got much more expensive for borrowers.

Under the proposal, limits for Federal Housing Administration loans would also increase to the temporary level; the current FHA loan limit is $362,790.

"A temporary increase in Fannie Mae and Freddie Mac's loan limits, as well as a boosting of the FHA loan limit should return liquidity to a portion of the mortgage market that has essentially been at a standstill since August," said Kieran Quinn, MBA chairman, in press release.

"This will be especially helpful to current and potential homeowners in areas of the country that have seen the largest price run-ups during the recent boom."

However, the Office of Federal Housing Enterprise Oversight said that it was a mistake to increase the limit in the absence of comprehensive reform to GSEs Fannie Mae and Freddie Mac.

"To restore confidence in the markets we must ensure that the GSEs' regulator has all the necessary safety and soundness tools," OFHEO director James B. Lockhart said in a release.

Last week the National Association of Realtors said that lifting the limit to $625,000 would "lower interest payments for consumers who get new 'GSE jumbo' loans, reduce the supply of homes on the market bolster home prices, increase economic activity, and reduce foreclosures.