Realty Viewpoint: Conforming Loan Reform on the Table For Months

Realty Viewpoint: Conforming Loan Reform on the Table For Months

If consumers would like some positive proof of what the National Association of Realtors does to promote homeownership, the recent agreement between the White House and House leaders to include higher conforming loan limits in an economic stimulus package is a perfect example.

The NAR has been lobbying since 2005 to raise the limits on FHA loans to $625,000 because high-cost areas such as California and Florida have many areas where the median home is out of conforming range. Relief on the coasts could be enough to calm the markets across the nation.

Any loan that doesn't conform to government guarantee limits costs more than a conforming loan, so when the subprime crisis came to a head last summer, all non-conforming loans were curtailed by lenders, including "jumbo" loans. Jumbo loans serve consumers borrowing more than $417,000 to buy a home.

The NAR through its public relations and its lobbyists have importuned the government with figures that suggest that a higher loan limit would accomplish a number of objectives:

• lower interest payments for consumers who get new "GSE jumbo" loans

   

• reduce the supply of homes on the market by one to one-and-one-half months

   

• strengthen home prices by two to three percentage points

   

• reduce foreclosures by 140,000 to 210,000

   

• stimulate an additional 348,000 home sales.

   

• increase economic activity by $42 billion.

The reason this will make such a difference is lending is clogged right now. Banks don't want to loan money and not be able to get more money, so having higher limits on FHA loans means that government-sponsored enterprises like Fannie Mae and Freddie Mac will guarantee those loans. That means the loans can be packaged into securities for investors, and investors will buy them because most of the risk has been taken out of the equation.

But the new limits aren't a done deal yet. The Bush administration would like to see higher loan limits coupled with closer oversight of Fannie Mae and Freddie Mac.

Those naughty siblings are still recovering from years of accounting fraud and upper management shuffling, so the government wants to make sure the GSEs can handle even more responsibility.

The House has passed a GSE reform bill, but the Senate hasn't and that could cause significant delays. Lawmakers promise quick action, but homeowners and buyers are still waiting.

Regardless of what happens or when, we wanted you to know that Realtors are spending their money trying to help you buy homes.


Written by Blanche Evans
January 28, 2008