NAHB Opposes OFHEO Proposal to Lower Conforming Loan Limits
The Office of Federal Housing Enterprise Oversight (OFHEO) last week published a notice in the Federal Register that would allow it to establish new guidelines that could result in future declines in the conforming loan limit. The notice requests comments on changes to proposed guidance that OFHEO issued in June, which NAHB strongly opposed because it would have adverse consequences for the nation’s home buyers.
NAHB also questioned OFHEO’s statutory authority for this guidance and urged OFHEO to issue the proposed changes for comment in the Federal Register, rather than just posting the announcement on the agency’s Web site.
Although OFHEO has acceded to NAHB’s request to obtain broad public input on the proposed changes through a Federal Register notice and has announced that it will not lower the current conforming loan limit of $417,000 in 2008, NAHB continues to oppose the proposed procedures because they could result in future declines in the conforming loan limit.
Conforming loan limit calculations establish the maximum size limit for loans that Fannie Mae and Freddie Mac are allowed to purchase and they are also used to set limits for FHA and VA loans.
These limits are determined annually based on year-over-year changes to the existing level of home prices based on data from the Federal Housing Finance Board’s Monthly Interest Rate Survey.
The average home purchase price on which the calculation is based declined by 0.16% last year. Under the OFHEO proposal, if the price continues to decline this year and in 2008, and the cumulative decline is more than 3%, then the limit for 2009 would be adjusted downward by that amount.
Stating that “the proposal does not appear to be authorized under current law, which only permits increases in the loan limit,” NAHB, along with the Mortgage Bankers Association and the National Association of Realtors®, sent a joint letter to the leadership of the Senate Banking Committee and House Financial Services Committee in July urging that the earlier guidance be withdrawn.
The law specifies that the annual adjustment to the limit each November for the following calendar year is made by "adding" to the amount, not subtracting from it. OFHEO is now attempting to get around this requirement by defining a decline as a “negative increase.”
In addition, the three groups noted that the proposed change would be bad public policy.
"As you are aware, the housing sector is currently undergoing a correction, and there is concern about the availability of funds for the refinancing of loans and for new loans," the letter said. "Reductions in the conforming loan limit could impair the ability of some borrowers to refinance out of subprime mortgages, which is of particular concern for families with problematic mortgages, as well as prevent some first-time home buyers from obtaining lower-cost financing on conforming, FHA or VA loans."
NAHB policy specifically calls for “OFHEO to withdraw proposed guidance that would permit a decline in the conforming loan limit.”
In comments on the June proposal, NAHB maintained that the conforming loan limit can only be increased, but not decreased, under current statutory authority.
In addition, the association noted that the possibility of a reduction in the conforming loan limit would create market uncertainty and significant negative repercussions for consumers, builders and lenders at a time when the housing market is struggling to regain its footing. Housing consumers would be impacted by higher financing costs for non-conforming loans, while builders and lenders would face operational disruptions.
Further, NAHB faulted OFHEO for not following the Administrative Procedures Act in issuing the proposal, including a full notice and comment in the Federal Register. NAHB also raised this concern in separate correspondence to the Office of Management and Budget.
NAHB will once again submit comments opposing OFHEO’s proposed guidance, arguing that this it is not only bad public policy in the wake of the ongoing housing correction, but is not authorized under current law, which provides that the limit may only be adjusted based on increases in the statutory home price index.
For more information, e-mail Michelle Hamecs at NAHB, or call her at 800-368-5242 x8425.
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