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Lenders Say No to Higher Conforming Limits

Lenders Say No to Higher Conforming LimitsConsumer Mortgage Coalition sends letters to Congress

October 10, 2007


Mortgage lenders are urging members of Congress not to raise the conforming limit — warning that only wealthy borrowers would benefit at the expense of everyone else.

In separate letters to the U.S. Senate and House of Representatives, the Consumer Mortgage Coalition said the mortgage industry is already meeting the needs of jumbo borrowers — those who seek home loans in excess of $417,000. Unlike undercapitalized companies that were recently unable to honor their representations and warranties, CMC members do have resources and access to the capital market.

“Since the severe market disruptions began in July 2007, our member companies have funded approximately $75 billion of mortgage loans,” the letters said. “They expect to fund another $75 billion of jumbo loans by year-end..”

The trade association, which includes lenders, servicers and service providers, explained that in addition to displacing private sector capital and resources, such a move would only benefit a small number of wealthy borrowers at the expense of all other 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.”

The association, which claims its members are responsible for the majority of U.S. home mortgages, said recently tightened underwriting guidelines are not a negative and will prevent more foreclosures.

Despite problems in the secondary market, CMC said its members are able to hold jumbo mortgages until these problems are resolved. The association noted that although the spread between jumbo and conforming loans sharply increased recently, market forces have already cut that spread by half since its peak.

The group warned that even a temporary increase the cap for loans that can be bought by government sponsored enterprises Fannie Mae and Freddie Mac would likely end up becoming permanent. In addition, such a move would only increase risk to the two companies as well as taxpayers, divert resources away from borrowers who need them and make it more difficult for Fannie and Freddie to achieve their affordable housing goals.

CMC also reasoned that pooling larger loans, which prepay faster, with existing GSE loans would only raise the interest rates required by investors for borrowers with loans under the current conforming limit.

The group concluded that high-cost areas of the country have already been factored into the existing conforming limit.

“If the basis for increasing the conforming loan limits is to prevent potential jumbo-loan borrowers from being priced out of the market, that rationale is rapidly being undercut by market trends,” CMC stated. “It would be better to allow the markets to resolve pricing issues than to implement a solution which may lead to a permanent increase in the risk of the GSEs — two companies that are much more highly leveraged than private financial institutions.”

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