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Senate Increases Federal Loan Limits in Wake of Ill Effects

by Chicago Agent

The Senate approved an increase of the federal loan limit, just three weeks after letting it expire.

In a late hour vote, the Senate approved by a 60-38 margin a measure to expand federal loan limits and return government-backed loans to the $729,750 that had been in effect the last three years.

Originally capped at $625,000, the federal loan limit was raised in response to tightening credit markets after the collapse of Lehman Brothers in 2008. Popular with Realtors and homeowners alike, the measure expired last month, despite intense lobbying efforts from the National Association of Realtors (NAR).

The Obama White House had argued that an expiration of the expansion would decrease the importance of Fannie Mae and Freddie Mac in the home loan market. The two GSEs currently issue 9 out of 10 new mortgages, and the White House had hoped that private lenders would step in and fill the void.

Interestingly, the Senate vote came on the heels of a survey by the NAR that decisively concluded that the falling loan limits had immediate impacts on the housing market.

As reported by Alan Zibel of the Wall Street Journal, “Of the 1,300 agents surveyed, about half said they represented buyers who had been affected by the change in limits, the Realtors group said. Among those Realtors whose clients were impacted, 16% said they represented a buyer who was forced to give up searching for a home.”

Of course, as Zibel points out, more time is necessary to gauge the true effects of the lower limits; in addition, the survey had its limitations – of the 100,000 agents contacted by the NAR, only 1.3 percent responded.

Even more ambiguous, though, is the fate of the loan limit measure in the House of Representatives, where the Republican majority is unlikely to support the limit increase, according to an analyst quoted by Robert Schroeder of Market Watch.

“As House Republican leaders want to shrink the government’s role in housing finance, it is hard to see why they would advance legislation to make more of the mortgage market subject to government support,” said the analyst, Jaret Seiberg of MF Global Inc. “This is why we don’t expect the higher conforming loan limits to get through the House.”

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