Bill Raises Conforming Limit to $540,000

Rep. Scott Garrett’s (R-N.J.) amendment to the House bill, calling for the elimination of the proposed increase in the conforming loan limits contained in the GSE regulatory reform bill, was defeated on the floor. A Republican aide said the amendment was added to the bill during markup. The bill raises the conforming loan limit so that Fannie Mae and Freddie Mac can purchase jumbo loans of up to $540,000 in high-cost areas. The GSE loan limit is currently $370,000 nationwide.

Conforming loans usually include loans which meet the requirements to be purchased by Fannie Mae or Freddie Mac. Loans are underwritten using guidelines established by those agencies.

Industry groups such as the Financial Services Roundtable Housing Policy Council and America’s Community Bankers oppose the increase, arguing that it is not necessary because the private sector provides adequate sources of funding for larger mortgages and that the increase contradicts the bill’s goal to focus the GSEs’ efforts on providing secondary market support for low and moderate-income borrowers. Community bankers in high priced housing markets often fund jumbo, or nonconforming loans, and an increase in the limit would reduce the number of jumbo loans available.

But groups such as the National Alliance of Independent Mortgage Bankers and the National Association of Realtors had maintained that the increase creates a more equitable distribution of GSE benefits to homebuyers.

Another supporter of the bill is the National Association of Mortgage Brokers. In a letter to the House, the McLean, Va.-based group’s President, Jim Nabors II said, “Passage of H.R.1461 will advance the process of establishing a strong, evenhanded regulatory framework for Fannie Mae and Freddie Mac, and it will aid in preserving their ability to accomplish their secondary market housing mission.”

NAMBs letter went on to say that the bill’s language should be clarified to protect the GSEs’ automated underwriting systems, which brokers utilize to shop a loan between wholesale mortgage lenders.

The mortgage banking industry’s dominant trade group, the Mortgage Bankers Association, commended passage of the bill. “Today’s action by the House underscores the importance of bringing clarity to the GSEs’ defined role of supporting the secondary residential mortgage market,” said MBAs Senior Vice President for Government Affairs, Kurt Pfotenhauer in the statement. “The establishment of a strong and independent federal regulator will provide the needed accountability to ensure the safety and soundness of the GSEs.”

Passage in the House does not mean the reform legislation faces smooth sailing in the Senate. The Senate and House versions of the legislation differ. In addition to lacking the provision calling for the increase in conforming loan limits, S. 190, the Federal Housing Enterprise Regulatory Reform Act of 2005, provides specific Congressional direction to the new regulator to limit the portfolio holdings of Fannie and Freddie to what is necessary for them to carry out their original charter of providing a limit to the secondary market and to provide affordable housing. There is no such directive on the House side. Also, the Senate version does not create a low-income housing fund.

Within the Senate, there are differences between the Republicans and the Democrats on substantive parts of the Senate bill, said Andrew Gray, a spokesman for the Senate Banking Committee who also works for Sen. Shelby. Shelby sponsored the bill in the Senate. “We’re trying to achieve the type of consensus necessary to move it through the full Senate,” Gray said. “Clearly there are some differences that need to be ironed out before we are able to move forward but Sen. Shelby feels strongly about the bill that we passed out of the committee. He feels that it is a good piece of legislation and that we need to move forward with the core elements that we have contained in that bill.”

The White House opposes the House version of the proposed reform legislation. A Republican aide said that if the House bill in its current form “passed all the way through,” the president would veto it. The White House has criticized the bill as creating a weaker regulator than those supervising other large financial institutions.

This week’s House vote on the legislation came nearly a year after federal regulators ordered Fannie to restate $10.9 billion in previously reported earnings. A vote on the Senate bill has not yet been scheduled.

Fannie weighed in on passage of the bill.

“The legislation passed today by the House of Representatives is an important step forward and represents strong legislation that will strengthen the safety and soundness oversight of our company and the GSEs,” said Fannie spokesman Chuck Greener in a statement. “We appreciate the leadership demonstrated by…members from both sides of the aisle throughout consideration of the bill.

“We are hopeful a bill will be signed into law.”

Lisa D. Burden is a legal analyst for MortgageDaily.com and holds a law degree from the University of Maryland. She is currently a freelance journalist who previously wrote for Institutional Investor publications and the Baltimore Daily Record.

e-mail Lisa at: burdenlisa@yahoo.com