California Lawmakers Push Congress for Permanent Increase to GSE Loan Limits

In a proposal that was probably a foregone conclusion when the Economic Stimulus Act of 2008 was signed into law this past February by President Bush, two California lawmakers on Monday introduced legislation that would make a loan limit increase tied to the measure permanent, according to a press statement.

Reps. Gary Miller (CA-R) and Jerry McNerney (CA-D) on Monday introduced legislation in the House of Representatives that would permanently increase the loan limits for Fannie Mae (FNM: 0.59 0.00%), Freddie Mac (FRE: 0.65 +1.56%), and the Federal Housing Administration (FHA). Introduction of H.R. 5958, the Homeowner Opportunity Act, comes as the House prepares to debate a number of proposals later this week to stimulate the housing market.

The economic stimulus package passed earlier this year by Congress temporarily boosts conforming and FHA lending limits to as much as $729,500 in certain high-costs areas identified by pricing indexes maintained by the U.S. Department of Housing an Urban Development — a temporary boost that California lawmakers say isn’t enough.

“We are currently in the midst of the most serious downturn in the housing market that I have seen in more than thirty years,” Miller said. “The impact of allowing loan limits to return to their previous levels would be disastrous.”

It’s not clear what disastrous consequences Miller fears, however — very few of the newly-certified jumbo conforming loans have been moving via either GSE or the FHA as of yet, according a review of most available market data sources.

Fannie Mae execs told conference goers at the MBA Secondary Markets conference in Boston on Tuesday that the GSE intends to “more aggressively price” its jumbo conforming product, but as of yet, neither GSE has seen significant movement in the newly-conforming mortgage market.

The National Association of Realtors has been lobbying strongly for such a permanent increase since early March, but also argued in testimony before the Senate Committee on Banking, Housing and Urban Affairs that the GSE loan limit should be raised to $625,000 across the board as well.

“It’s pretty likely that major consumer-facing housing groups won’t want to let go of the gains they get from Congress,” said one source, a lobbyist who asked not to be identified by name. “Anything housing-related that is passed on a temporary basis will likely become permanent at some point, as a result.”

Disclosure: The author held no positions FRE or FNM when this story was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.