Details on new GSE lending limits

Not that many will benefit from higher conforming mortgage limits

By Lew Sichelman

ORLANDO, Fla. (MarketWatch) -- Only 15 counties in the U.S. have a median house price high enough to qualify for the temporary maximum conforming loan limit called for in the economic stimulus package, an indication that the big jump may not help as many home buyers and refinancers as originally expected.

The National Association of Home Builders had hoped that as many as 29 metropolitan areas would qualify for the new $729,725 ceiling. But according to a staff member at the group's convention in Orlando last week, it now appears that less than 10 will make it.

The NAHB has been saying that more than 3 million additional owner-occupied houses will be eligible for what are now being called "jumbo conforming" loans that can be purchased by Fannie Mae and Freddie Mac, the two government-sponsored enterprises charged with brining liquidity to the mortgage market.

But with just 15 counties moving to the maximum, and most of those in Southern California, it's possible only half that number of houses will qualify.

NAHB officials also expressed concern that Fannie and Freddie's safety and soundness regulator, the Office of Federal Housing Enterprise Oversight, will drag its feet in approving the GSEs' programs to buy the higher-limit conforming loans.

During a Housing Finance Committee meeting, past NAHB presidents Bobby Rayburn and Kent Conine repeatedly hammered at an OFHEO officer that speed is of the essence, especially since the cut-off for Fannie and Freddie to buy the larger loans is Dec. 31.

The good news, according to Federal Housing Administration Director Joanne Kuczma, is that the median price of houses in 85% of the country's 3,300-plus counties is high enough to qualify for a higher ceiling on FHA loans, as also set forth in the stimulus package signed by President Bush last week.

The measure boosts the limit on loans that can be insured by the FHA to the same $729,750 in high-cost areas and raises the floor on government-insured loans from 95% of an area's median to 125%.

Under the new floor, the FHA limit would be $271,050, regardless of an area's median home price. But that's still substantially below the current Fannie-Freddie lid of $417,000.

The law requires the FHA to calculate the ceilings and put them in place within 30 days after the President signs the stimulus legislation. It also requires Fannie Mae and Freddie Mac to operate under those calculations.

Kuczma told the NAHB last week that a mortgagee letter notifying lenders of the new limits already has been written and will be sent within a few weeks. Until then, no one knows for certain what the ceilings will be for any particular market.

In a separate session, both GSE chairmen vowed to move as quickly as possible to implement the higher loan limits. Freddie Mac's Richard Syron told the group's board of directors that "we will find a way to get this done." And his counterpart at Fannie Mae, Daniel Mudd, said his company already is working with lenders "to get them up to speed."

Regulator's reluctance

But the NAHB is worried, as are some Fannie and Freddie officers, that OFHEO will have to be dragged, kicking and screaming, into giving the GSEs the green light.

Although he has vowed to work with the GSEs, OFHEO Director James Lockhart is on record as opposing the temporary increase in the conforming loan limit. And the concern is that OFHEO will set such high capital requirements and set the bar so high for qualifying for a jumbo conforming mortgage that only a relative handful of loans will be made.

At the convention, Edward DeMarco, OFHEO's deputy director, said his agency is "committed" to carrying out the intent of Congress. And he stressed that the internal review processes that must be undertaken are those of Fannie and Freddie, not OFHEO.

"We're asking them to operate their businesses is a safe and sound manner," DeMarco said. "We're not trying to impede them. We're right there with them, making sure they understand the added risk they are undertaking."

But in a late January statement, Lockhart indicated his agency would have a large presence in the process, saying it wants to be certain the GSEs have the "appropriate risk management policies and capital in place."

Hence, the fear that OFHEO will make Fannie and Freddie "jump through hoops."

"When you have a fire, you don't call a committee meeting to put it out," said one worried finance committee member, referring to the flagging housing market the temporarily higher loan limits are intended to boost. "You use all the means necessary available to you as quickly as possible."