OFHEO Decides Not to Lower Conforming Loan Limits
Based on the recommendations it received from NAHB and other industry groups, the Office of Federal Housing Enterprise Oversight (OFHEO) on March 26 announced in its final guidance on conforming loan limit calculations that there would be no decrease from the current level of $417,000 in 2009 and subsequent years.
“OFHEO’s decision to reverse a proposal to establish new guidelines that could have resulted in lower conforming loan limits in future years is welcome news for the housing sector,” said Jerry Howard, executive vice president and CEO of NAHB. “With housing in the midst of a serious downturn and the mortgage markets in crisis, this move is a step in the right direction to ensure that there is an adequate availability of funds for the refinancing of loans and for new loans.”
OFHEO said, however, that the conforming loan limit will not increase until cumulative increases in house prices exceed cumulative decreases since the $417,000 limit was first reached in October 2005. This is consistent with current practice for the annual loan limit adjustment, which NAHB supports.
The announcement has no impact on the temporary increase in the conforming loan limit for high-cost areas recently established in the economic stimulus act and set to expire at the end of this year.
Under OFHEO’s earlier proposal, any decreases in the conforming loan limit would have been deferred one year and the cumulative decline would have had to total more than 3% before a decrease in the limit would have been imposed. The cumulative two-year decline in the FHFB index is now 3.65%. Under the OFHEO proposal, the 2009 loan limit would have been adjusted downward by that amount if this year’s index calculation did not shrink the cumulative decline to a level below the 3% threshold. Recent and expected future home price readings suggest that implementation of OFHEO’s proposed adjustment method would have resulted in a conforming loan limt reduction in 2009.
In comments on the proposal, NAHB stated that the adjustment procedure was unnecessarily complicated and would create market disruptions. To avoid potentially negative market impacts, NAHB recommended to OFHEO the continuation of the current practice where declines in the FHFB index are netted out from future increases. NAHB also commented that OFHEO’s proposal did not appear to be authorized under current law, “which only permits increases in the loan limit.”
In the midst of a cyclical downturn and significant tightening in the availability of mortgage credit, NAHB also noted that “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.”
For more information, e-mail Michelle Hamecs at NAHB, or call her at 800-368-5242 x8425.
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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.
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