OFHEO Clarifies Proposal on Conforming Limit Guidance

Last week, you’ll recall the the Office of Federal Housing Enterprise Oversight released proposed guidelines covering conforming loan limits — and that the language used led to some real confusion from yours truly. It looks like I wasn’t alone in my confusion, as the OFHEO today released a clarification of its proposed guidance, adding scenarios to help illustrate how the guidance would be applied. And it turns out my initial reading of the proposed guidance was actually correct — price declines are accumulated until the magnitude of decrease is greater than 1 percent before being implemented. With that squared away, my original question stands: is it really a good idea to accumulate losses until an arbitrary magnitude is reached? I realize the level here is set at 100 basis points, but it seems that this process of accumulation could leave the GSEs trailing market conditions rather than adjusting to current market reality.

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