The Housing Chronicles Blog: Higher loan limits not a slam dunk

Monday, January 28, 2008

Higher loan limits not a slam dunk

Think that the higher conforming loan limits proposed in last week's bi-partisan stimulus plan are a done deal? Not necessarily -- soon after the announcement was made, the director for the Office of Federal Housing Enterprise Oversight (OFHEO) warned that raising the limits in the absence of additional regulatory reform would be a big mistake:

We are very disappointed in the proposal to increase the conforming loan limit as we believe it is a mistake to do so in the absence of comprehensive GSE regulatory reform...

We will also be working with Fannie Mae and Freddie Mac to ensure that any increase in the conforming loan limit moves through their rigorous new product approval process quickly and has appropriate risk management policies and capital in place.

According to a recent AP story, some lawmakers in Congress agree: least two key Senate Republicans argue that it would be a mistake to change the limit without establishing a new regulator with the power to reduce the companies' massive mortgage holdings, now worth a combined $1.5 trillion. Multibillion-dollar accounting scandals at Fannie and Freddie in recent years brought demands for tighter government supervision and cuts in the companies' portfolios.

Senator Mel Martinez suggests that a shorter period for raising the loan limits would be more prudent, giving lawmakers more time to draft and pass an oversight bill:

Sen. Mel Martinez, R-Fla., a former housing secretary in the Bush administration, said a better compromise would be to extend loan limits for a much shorter period, say, 90 to 120 days. Then, those limits would expire unless lawmakers pass a long-delayed oversight bill, he said.

"For a long time we have known these entities needed stronger regulation," Martinez said in an interview Friday. "They have the implicit guarantee of the federal government...If these companies were to go under, the Treasury would be in a terrible fix."

This deal between the two parties has not been signed yet, and there might be more changes to come:

While Senate leaders want to send the economic stimulus package to the White House by Feb. 15 for President Bush's signature, Democrats were considering adding more spending for the unemployed, food stamp recipients and states suffering budget crunches. If Democrats push for changes, that could give Republicans a chance to do so as well.

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