Single-Family Loan Limit to Remain at $417,000 in 2008
The Office of Federal Housing Enterprise Oversight (OFHEO) on Nov. 27 announced that the 2008 conforming loan limit for single-family mortgages purchased by Fannie Mae and Freddie Mac will remain at $417,000, unchanged for the third straight year. The announcement is consistent with guidance proposed by OFHEO to handle future conforming loan limit adjustments.
Conforming loan limit calculations establish the maximum 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 FHFB reported that the average home declined in price by 3.49% between October 2006 and October 2007.
Proposed Changes to Allow Lowering Limits Opposed
On Oct. 22, OFHEO published in the Federal Register a revised Examination Guidance proposal that would allow the agency to establish new guidelines that could result in future declines in the conforming loan limit.
Under OFHEO’s proposal, any decreases in the conforming loan limit would be deferred one year. Decreases would have to total cumulatively more than 3% before a decrease would be implemented, a change from the 1% amount in an earlier proposal. The notice also clarifies that if a loan is conforming at the time of origination, it will remain conforming regardless of whether the loan limit declines after the origination date. Changes in the limit would be rounded down to the nearest $100.
NAHB policy specifically calls for “OFHEO to withdraw proposed guidance that would permit a decline in the conforming loan limit.”
Consistent with this policy, NAHB submitted comments opposing OFHEO’s proposal in letters dated July 19 and Nov. 21. NAHB’s comments stressed that not only is it bad public policy in the midst of the ongoing housing correction and mortgage market turmoil, it is not allowed under current law, which provides for the conforming loan limit only to be adjusted based on an increase in the statutory house price index.
NAHB also faulted OFHEO for not following the Administrative Procedures Act (APA) in issuing the original proposal, including a full notice and comment request in the Federal Register. NAHB also raised this concern in separate correspondence with the Office of Information and Regulatory Affairs (OIRA) at the Office of Management and Budget (OMB) in a letter dated Aug. 2.
While OFHEO acceded to NAHB's request to obtain broad public input on the proposed changes through a notice in the Federal Register, the association continues to oppose the proposed procedures because they could result in future declines in the conforming loan limit. The proposed calculation procedure is also unnecessarily complicated and increases the risk to housing market participants.
For example, with the FHFB index declining by 0.16% in October 2006, the cumulative two-year decline is now 3.65%. Under the OFHEO proposal, the 2009 loan limit could be adjusted downward by that amount, although the actual adjustment will not be known until next November. In anticipation of the lower limit, lenders might reduce their conforming loan threshold to $401,700, reflecting the 3.65% decline.
However, if the October 2008 index were to increase by more than 0.65%, the loan limit would again remain unchanged since the cumulative decline would fall below the 3% trigger. Lenders who had reduced their conforming loan threshold would have unnecessarily restricted access to GSE financing. Such a premature financing constraint would be particularly onerous for purchasers of newly built homes who typically lock in their financing up to a year prior to closing.
To prevent such potentially negative impacts from a decline in the conforming loan limit, NAHB recommended to OFHEO the continuation of the current practice of netting out declines in the Federal Housing Finance Board index from future increases, so that decreases are incorporated into the calculations but in a manner that would prevent the limit from ever declining from its present level. NAHB maintains that the current practice achieves the same objective as OFHEO’s proposal without the potential for confusing and disrupting the market. Although there is also a level of uncertainty about the level of the limit under the current procedures, at least there is certainty that it will not decline, consistent with the existing statute.
For more information, e-mail Michelle Hamecs at NAHB, or call her at 800-368-5242 x8425.
Webcast of NAHB Fall Construction Forecast Available Till Feb. 5
The webcast of the NAHB Fall Construction Forecast Conference held in Washington, D.C. on Oct. 24. is available for purchase through Feb. 5.
The conference webcast includes panels of nationally recognized experts discussing economic trends, government policies, developments in the housing industry and the results from NAHB's recent surveys.
Purchasers will receive unlimited access to the webcast archive though Feb. 5, as well as electronic copies of the conference handouts and presentation material. Purchasers can watch at their own pace, rewind, fast forward and review important sections.
To Purchase the Webcast
To purchase the webcast, visit www.nahb.org/cfcwebcast.
For more information, contact Kate Carrigan at NAHB, or call her at 800-369-5242 x8244.
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Free NAHB Kit Gives Builders Back-to-Basics Tips to Navigate the Slowdown
What was once expected to be a relatively mild housing slump following three years of record new home construction and sales has given way to a significant downturn.
To help members navigate the uncharted waters of this slowdown, NAHB has compiled a comprehensive “Back to Basics” online toolkit — the best of the basics, the tried and true and the truly new. To access the toolkit, click here.
To access the “Back to Basics” toolkit, you must be an NAHB member and have a login to www.nahb.org. To create a login, go to www.nahb.org/login or click on the log-in button on the main menu bar.
For assistance, call the NAHB Member Service Center at 800-368-5242.