Fannie Mae-No Politics (FNMA)

[navycmdr]

Non-Agency Players Want Fannie/Freddie Loan Limits Lowered, But?

Lowering the government-sponsored enterprises? loan limits is one of the main goals for firms involved in the non-agency market, but the effort lacks broad support in the mortgage industry, let alone Congress.

Among those submitting comments to the Treasury Department this month regarding how to increase non-agency activity, the American Bankers Association was one of the biggest supporters of decreased loan limits for the GSEs. The conforming loan limit is at $417,000 and in high-cost areas the loan limit for the GSEs and FHA is as high as $625,500.

The conforming loan limit and high-cost limit are ?dramatically higher than necessary for the purchase of a moderately priced home, especially in light of housing price declines nationwide,? according to Robert Davis, an executive vice president of mortgage markets, financial management and public policy at the ABA.

He said loan limits in much of the nation could be reduced. ?This will assist the development of a private market for loans outside of the conforming loan limits as a step to a more fully private market for all loans,? Davis said.

Officials at Redwood Trust said structural reforms should be implemented to attract more investors to non-agency mortgage-backed securities. The next step would be to reduce conforming loan limits. For further analysis, see the new edition of Inside Nonconforming Markets.