The elevated conforming loan limit for mortgages guaranteed or insured by the government will expire on Oct. 1, according to three congressional staffers, but another chance to extend them will come later this year.
Congress raised the limit to as high as $729,750 in 2008 as the private market froze and financing for larger mortgages became unavailable. On Oct. 1, the limits will expire and drop to $625,500 in the most expensive areas, mostly affecting the West and East Coasts. According to Standard & Poor's
, there are around 110,000 nonconforming mortgages in the nation between $625,000 and $729,000 -- about 2% of total jumbos.
Two bills to extend the limits, one introduced
in the House and another
in the Senate, were never voted on. A spokesman for Rep. John Campbell (R-Calif.), who co-sponsored the House bill, said an extension did not make it into a short-term spending bill the House will vote on next week.
"We are focusing all of our effort and attention on making sure that a temporary extension of the current conforming loan limits is included in an omnibus spending bill that it appears the House and Senate will consider late this year," Campbell's spokesman said.
Another staffer confirmed top leadership in the House had been trying to work the conforming loan limits into the spending bill ahead of the Oct. 1 deadline. Such a route had to come from the House, the staffer said. Yet another told HousingWire the odds of getting an extension after the limits expire were very long.
Industry trade groups pushed hard this past week, urging lawmakers to extend the limits at a time when the housing market is still fragile.
The Obama administration said in its white paper released in February that the first step toward winding down Fannie Mae
and Freddie Mac
would be to allow the loan limits to expire in October, allowing private capital to move back in.
Jaret Seiberg, a research analyst at the Washington think tank MF Global
, said in a note that the expiration allows the largest banks to restart their securitization businesses.
"The real issue is whether investor demand has returned for private-label RMBS. We believe regulators have some doubts, but would like banks to test the waters," Seiberg said.
Seiberg did say many borrowers could be forced to come up with higher down payments, and smaller banks will shy away from originating jumbo loans. Some analysts expect house prices to fall even further without the government support at the highest end of the market.
"We expect to see significant negative consequences for the struggling housing market as a result of the limit drop after Oct. 1," Campbell's office said. "Therefore, it will be even more pressing and pertinent that Congress acts quickly to reverse the limit reduction at the next opportunity."
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