We might be heading for chaos in the market if regulators move forward with their plan to lower the maximum size of mortgages that can be backed by Freddie Mac and Fannie Mae! Currently the maximum is set at $417,000 in much of the country and $625,500 in expensive areas such as San Francisco, Los Angeles and Orange County.
The Federal Housing Finance Agency (FHFA) said the change would probably take effect at the end of the year.
Some trade groups representing mortgage bankers and real-estate brokers have argued that the housing markets still have not stabilized enough to begin lowering limits.
Immediately following the financial crisis, most lenders were requiring not only stellar credit but 30% or larger down payments. But Wells Fargo Home Mortgage, the nation’s largest mortgage lender, in July cut the down payments to as low as 15% in some cases, spokesman Tom Goyda said Monday. This might be a reactive move by Wells Fargo as they recently told investors that they expect a decrease in mortgage originations of almost 30% in the third quarter this year, a loss of $32 billion.
The upper limit for Fannie and Freddie loans in high-priced areas was increased in 2008 to $729,750 to support the collapsing housing market. That limit was reduced to $625,500 in October 2011, although the $729,750 cap is still in place for loans insured by the Federal Housing Administration.
There is broad consensus in Washington that Fannie and Freddie must be reformed, although disagreements run deep on whether to eliminate them entirely and over how to set up a more limited government backstop for home loans.
What effect do you think lowering the cap might have on the market? We’d like to hear from you.
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