WSJ: Government to Lower Maximum Loan Amounts

The government is getting ready to lower the maximum size of loans eligible for backing by Fannie Mae and Freddie Mac, according to the Wall Street Journal.

The move is designed to help bring the private market back into the mortgage industry, but will likely run into resistance from the real estate industry.

Any fight over loan limits “shows why it is going to be hard” to reduce the government’s role in the mortgage market, said Paul Miller, a banking analyst at FBR Capital Markets. “A lot of people who talk about having more private capital, they’re not ready to walk the walk,” he said.

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Groups such as the National Association of Realtors are against the changes happening now.

“It would be counterproductive to make changes to the loan limits before private capital is fully engaged,” said Gary Thomas, president of the NAR during an interview with the WSJ.

Fannie and Freddie Mac can back mortgages that have balances as high as $417,000 in most parts of the country and up to $625,500. In a statement to the WSJ, the Federal Housing Finance Agency, which regulates Fannie and Freddie, said it hasn’t announced how far it will drop the loan limits, which would take effect Jan. 1, 2014,

A spokesperson wouldn’t comment specifically but said “gradual reduction in loan limits is an appropriate and effective approach to reducing taxpayers’ mortgage-risk exposure…and expanding the role of private capital in mortgage finance.”

Loan Size to Be Cut for Fannie, Freddie

Written by John Yedinak

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  • It took HERA to peel back FNMA mortgage acquisition before so what will it take to do so again? Let us hope that any reduction in the size of the mortgages being acquired is done gradually and not in large chunks.

    (The views expressed are not necessarily those of RMS or its affiliates.)

  • With real estate values apparently stabilizing, exotic mortgages gone, and yield opportunities limited, private capital interest in mortgage backed investments is surely increasing. Mortgage holder’s rights need to be upheld though (ie: the eminent domain lawsuit currently in the works).

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