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Affordability concerns surface in conforming loan limit debate

Industry fears changes could leave borrowers out

The Federal Housing Finance Agency is internally considering a plan to lower the conforming loan limits for Fannie Mae and Freddie Mac loans, ending the era of the $417,000 conforming loan limit.

But not everyone is behind the idea. Pushback is coming from all sides of the market.

While the ceiling for GSE-purchased loans is $417,000 in most jurisdictions, some higher priced areas can still qualify as conforming with loans as high as $625,000.

"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," the National Association of Federal Credit Unions wrote in a letter to the FHFA.

"Anytime you lower the limit, you shrink the pool of potential buyers. The mortgage market is still, despite improvement, in a depressed state, especially if you compare it to where it was pre-bubble levels," added Rick Floyd, executive vice president of Real Estate Mortgage Network.

If the conforming loan limit had been pushed down to $400,000 in 2012, it would have impacted nearly 154,000 borrowers, NAFCU suggested in its letter.

"Lowering limits will only make it harder for many middle-income families to buy a home," Floyd said. "There are different ways to accomplish what they want to do, without just lowering the number."

Currently, cash transactions make up about 45% of all sales, Floyd explained. "This only leaves you 55% of the market to capture, and you are going to shrink that 55% even more."

However, the industry could still cope with the changes, Ted Ahern, chief financial officer with Guaranteed Rate, said.

"What will be important is whether or not private sector funding will be large enough to absorb mortgages that would no longer be FNMA or FHLMC eligible," Ahern said. "The jumbo market is smaller than it was several years ago, but it is becoming more liquid and a larger part of the overall market.

The latest report from the Mortgage Bankers Association noted that the average contract interest rate for a 30-year, fixed-rate mortgage with a conforming loan limit recently hit 4.42%.

In comparison, the average 30-year, FRM jumbo came in at 4.45%.  

"Banks and REITs have been reentering the jumbo market so there is more liquidity than there was 12 to 24 months ago," Ahern said. "With the strengthening of the housing market in the past 18 months, there is significant pent up consumer demand for both refinances and purchases by consumers in the jumbo space."

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