Congressmen Sherman and Miller Introduce Legislation to Permanently Increase Fannie Mae, Freddie Mac and FHA Loan Limits
Washington, D.C. - Today, Congressman Brad Sherman (D-CA), a senior member of the House Financial Services Committee, introduced bipartisan legislation along with Congressman Gary G. Miller (R-CA) to permanently increase the limits on the loans made in high cost areas that are purchased by Fannie Mae and Freddie Mac (GSEs) or that are insured by the Federal Housing Administration (FHA). Financial Services Committee Chairman Barney Frank (D-MA), and 29other members are original cosponsors of this legislation.
Established in 1934, the FHA provides mortgage insurance for prospective homebuyers. By purchasing mortgage loans from lenders, Fannie Mae and Freddie Mac provide lenders with the capital they need to make additional home loans. Both programs, however, are barred by law from insuring or purchasing loans above a certain size.
“Passage of this legislation would make mortgage financing more affordable in the San Fernando Valley and in other high cost areas throughout the United States. Increasing the availability of such affordable mortgage financing is critical to helping to stabilize the housing market and to returning Fannie, Freddie and the FHA to relevance in California. It is critical to make the increased loan limits permanent so that affordable mortgage financing can remain available,” said Congressman Sherman.
“While lower priced home sales have increased in recent months, sales in the higher priced ranges have not seen as much movement because of higher interest rates on jumbo loans,” said Congressman Miller. “Buyers in high cost areas, such as Southern California, are at an extreme disadvantage simply because of where they choose to work and live. In order for the overall economy to recover, every part of the housing market needs to improve, including high cost areas. By permanently increasing the GSE and FHA loan limits, Southern Californians will have access to conforming loans, which can be about 100 basis points lower than if financed through a jumbo loan, thereby making homeownership more attainable. It is imperative that Congress permanently increase the loans limits so that hardworking Americans across the country have equal access to safer, more affordable mortgage products.”
Until the summer of 2008, the national single family conforming loan limit -- the size of the mortgage loans that Fannie Mae and Freddie Mac could buy -- was $417,000, even in high-cost areas and the FHA-insurable limit was $362,000, far too low to be of use to many home owners and prospective homebuyers in California and other high cost areas.
Under the Economic Stimulus Act of 2008, the loan limit for both the GSE and the FHA programs was temporarily increased through December 31, 2008 to a maximum of $729,750, depending on an area’s median home price. The Los Angeles Metropolitan area loan limits for 2008 were at the $729,750 ceiling.
Legislation was passed in 2008 that permanently increased the GSE and FHA loan limits to a ceiling of $625,500 effective January 1, 2009. Then in the economic stimulus bill, the American Recovery and Reinvestment Act that
became law in February 2009, Congress restored the 2008 loan limits to the 2008 ceiling of $729,750 through December 31, 2009. Thus, without further action, the ceiling on the GSE and FHA loan limits will fall once again to $625,500 on January 1, 2010.
“The temporary nature of these increases in the loan limits reduces the availability of affordable mortgage financing,” said Congressman Sherman. “The higher limits are not working as well as they should because the GSEs are reluctant to sell, and purchasers of mortgage-backed securities from the GSEs are reluctant to buy, loans that are conforming when issued, but which may not be conforming within a brief period. Allowing the current loan limits to fall would be disastrous to California.”