2008 Conforming Limit

The Office of Federal Housing Enterprise Oversight announced today that even if the house price index declines this year, the conforming limit will remain at $417,000. The index is calculated every October.

The conforming limit, which represents the maximum mortgage amount that can be purchased by government sponsored housing enterprises Fannie Mae or Freddie Mac, has been subject to adjustment since 1981. In 1970, the limit was just $33,000.

In 2006, the index declined 0.16 percent — though there was no corresponding reduction to the 2007 conforming limit. But if the index increases this year, an increase to the limit would first be offset by 0.16 percent.

Public guidance proposed by OFHEO calls for any decreases in the limit to be deferred by at least one year, the agency said. In addition, a minimum of a 3 percent decline in the index would be required before a decrease to the conforming limit would be made.

“Under no circumstance, however, would the maximum loan level for 2008 drop below the 2006 and 2007 limit of $417,000,” today’s release stated.

Other provisions to proposed revised guidance include the permanent status as a “conforming” loan for any loans that were within the conforming limit at the time of origination, which will ensure secondary market stability, and a rounding off to the nearest $100.

Public comment is sought on the revised proposal.

A group of mortgage lenders that claims to be responsible for the majority of U.S. home mortgages recently urged members of Congress not to raise the conforming limit.

In separate letters to the U.S. Senate and House of Representatives, the Consumer Mortgage Coalition — which includes lenders, servicers and service providers — said the mortgage industry is already meeting the needs of jumbo borrowers. They said only borrowers earning at least $130,000 would even qualify for a $625,000 loan — the amount proposed in reform legislation by the House, and “clearly not the low- and moderate-income customers that the proposal purportedly aims to help.”

Under the Bush administration, OFHEO is holding off on raising portfolio limits for Fannie and Freddie. The agency recently noted it wouldn’t be prudent to significantly boost the portfolio limit now because of ongoing organizational concerns over timely filings with the Securities and Exchange Commission.