Fannie Mae, Freddie Mac and the FHA are facing an upcoming cutback in mortgage limits, but banks say they're planning to expand their jumbo loan business in high-cost housing markets.
How big a deal is the upcoming cutback in mortgage limits for Fannie Mae, Freddie Mac and the Federal Housing Administration? Will buyers and sellers who depend on jumbo-sized loans find themselves in a financing squeeze after Oct. 1, when the limits plunge in key markets around the country?
Housing and realty lobbies are pushing hard on Capitol Hill for a continuation of the $729,750 high-cost area maximum, but one industry is delighted by the prospect and is gearing up to fill the gap.
From small community banks to megabanks, the message is the same: Bring on the switch to lower limits. We plan to expand our jumbo loan business wherever market demand requires. There will be no financing squeeze for anyone who needs a mortgage too big for Fannie, Freddie or the FHA, provided the applicant is creditworthy and has enough of a down payment.
Congress raised the conventional and FHA limits during the economic crisis to ensure access to capital for buyers and refinancers. Those limits are scheduled to adjust downward Oct. 1, unless lawmakers agree to an extension — a move that would run counter to calls from Republicans and the Obama administration to reduce the federal footprint in the mortgage arena.
Federal guarantees support loans purchased, securitized or insured by Fannie, Freddie and the FHA, putting taxpayers' dollars at risk in the event of foreclosures. Fannie and Freddie together have sopped up more than $150 billion in direct taxpayer assistance since being placed in federal conservatorship three years ago because of mounting losses from loan defaults.
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