Fannie and Freddie's Mortgage Size Limits Won't Drop in 2014
By Margaret Chadbourn
WASHINGTON -- The maximum size of U.S. home loans that taxpayer-owned Fannie Mae and Freddie Mac can buy will hold steady next year, their regulator said on Tuesday, deferring a decision on when to pull back government support for the housing market.
The mortgage financiers will continue to purchase loans up to a maximum of $417,000 in most areas, the Federal Housing Finance Agency said. In more expensive markets, such as Los Angeles and New York, the cap will remain at $625,500.
The limits were raised in 2008 to help keep the mortgage market liquid during the financial crisis, and the agency had begun to consider lowering them as the housing market recovered to allow private capital to support more home loans.
Last month, it said any changes would be phased in and announced six months before they were implemented to avoid economic disruptions.
In announcing its decision on Tuesday, the FHFA said the housing market was not showing enough strength to warrant lowering the limits now. It is expected to wait until sometime next year before deciding on any future reduction.
Some housing industry leaders and lawmakers have expressed concern that reducing the limits could shut out buyers and impede the housing recovery. Investors might not be willing to take the risk of buying mortgage-backed securities without a government guarantee, they cautioned.
Analysts, however, say a decrease would affect only a sliver of the market, about 2 to 3 percent.
"The housing market isn't going to flourish because of this announcement, but in some markets this eliminates a threat for 2014," said Jaret Seiberg, a senior policy analyst at Guggenheim Securities. "This is broadly positive for housing, but it's not the secret cure that's going to give us a healthy market."
Fannie Mae and Freddie Mac, which were seized by the government at the height of the financial crisis, do not make loans. They purchase mortgages from lenders, which they either keep on their books or bundle into securities that they offer to investors with a guarantee. They currently back about two-thirds of new U.S. home loans.
FHFA Acting Director Edward DeMarco wants to wean the housing finance system off this dependence on the government, but U.S. Rep. Mel Watt (D-N.C.), nominated by President Barack Obama as the next head of the agency, is expected to move cautiously.
Seiberg said Watt, who could be confirmed in the post by the Senate as early as next month, was not as prepared as the staff at the FHFA to lower the limits.
"Government policies continue to constrain credit more than economic conditions warrant and the result is the housing market is less robust than should it should be," said Seiberg.