Bernanke: Private sector ready for conforming loan limit drop

by JON PRIOR

Federal Reserve Chairman Ben Bernanke said in a House committee hearing Wednesday the private market is set to fill the void when the conforming loan limits on government-backed mortgages expire in October – at a higher cost to homebuyers.

Congress raised the conforming loans limits in 2008 to allow Fannie Mae, Freddie Mac and the Federal Housing Administration to insure, guarantee and buy more mortgages at a time when private funding froze during the financial crisis.

Without an extension, the maximum mortgage amount will drop to $625,500 from $729,750 in high-cost areas on Oct.1.

"As far as Fannie Mae and Freddie Mac are concerned, there is a tradeoff there between supporting the higher priced homes and weaning the housing finance system off of unusual limits it was put under during the crisis," Bernanke said. "I understand the private sector is taking at least a significant number of the jumbo mortgage market but at a higher cost."

Researchers from George Washington University said the FHA already exceeds the market share needed to serve its targeted demographic of low- to middle-income homebuyers.

According to Capital Economics, only 5% of the loans bought or guaranteed by Fannie and Freddie fell above where the conforming loan limit will drop to in October.

However, a separate report from the National Association of Home Builders suggests more than 17 million homes across the country will become ineligible for cheaper federal funding – at a time when the housing market continues to struggle.

"These are not necessarily mansions, but there are many of them around the country that would be affected," Rep. Gary Ackerman (D-N.Y.) said at the hearing. "The housing market and the low level of new homebuyers is a huge problem."

Ackerman then asked Bernanke how Congress should reconcile the possibility that many homeowners will not buy homes in this higher bracket when they would otherwise be qualified to do so.

"I don't have an answer other than to say that we have to get our housing finance system back into working order," Bernanke said.

URL to original article: http://www.housingwire.com/2011/07/13/bernanke-private-sector-ready-for-conforming-loan-limit-drop

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