Loan Limits - Contact Your Senator Today!

I agree with Steve. Haven't we learned our lesson that having the government artificially prop up home prices is awful public policy?

Regarding your response to Steve, the issue on the table is not the ideal limit, but whether the limit ought to be raised to 729K. The answer to that is clearly "no."

Steve, you have an interesting viewpoint. I'm curious as to why you feel that the limits should be $417,000. Why not $418K?, why not $300K? Is this a magic number that you've determined is right for everyone "regardless of area?"

Sorry Joe, but I couldn't disagree with your more.

The limits should $417,000 and no more, regardless of area.

The whole purpose of the GSEs (Fannie Mae and Freddie Mac) was to make mortgages easily accessable to the middle class. They were never intended to provide mortgage for the rich -- and regardless of what you say, someone who takes out more than a $417,000 mortgage better be rich.

I certainly do not want my tax dollars to bail out the GSEs as the high-priced homes go into foreclosure.

I understand that increasing the limits will help property values and sales. However, it simply not right to ask the middle-class to assume the risk of loans that can only be afford by household earning more than $139,000 per year (based on the 3x household income rule).

Eventually, the credit markets will return to normal. With proper underwriting, Wall Street will once again start buying the non-conforming loans.

I would rather have Wall Street accept the risk of these big loans than taxpayers.

Joe,

As you know and as Greg pointed out, I said $417k because that is the current, standard conforming loan limits.

And, that number makes sense to me. At $417k, a household should have in excess of $139k in annual household salary in order to afford the loan.

I'm not exactaly sure what percentage of American household make more than $139k, but I do know that less than 20% of the households earn more than $100,000 (with a median right around $50,000). Based on this, I can make an educated guess that less than 10% of the household earn more than $139k.

So, this means that the current $417,000 limits benefit around 90% of the households in the United States with respect to affordability -- and that seems like a fair and reasonable number.

Why should the average taxpayer bear the risk of those households earning more that $139k per year when the make up such a small portion of the population?

The key here is to remember the original purpose of the GSEs -- they were never meant to make mortgages for American's most affluent more accessible. They were created so that average Americans would have relatively easy access to *affordable* mortgages. The GSE's have succeeded in that original charter.

I simply do not see any reason to change the charter on something that has worked so well for 70 years now just because of a very temporary credit crunch.

Reactionary moves like raising the current limits puts the GSEs at further risk (and they're not doing well right now, as we speak). Potentially, GSE insolvency could have a MASSIVE negative effect on the real estate market -- far beyond the pressures of the current crunch.

If you think it's difficult to qualify buyers now, can you image how impossible it would be if the GSEs became insolvent due to some reacationary move made to solve a short-term, temporary problem?

Yikes!

Joe,

Incidentally, I failed to answer you question regarding my viewpoints “regardless of area."

Clearly, the conforming limits create much more problems for people in the San Francisco than people in rural Oklahoma.

However, just like I wouldn't expect the people in the Midwest to cover the higher costs of public works in the California coastal areas, I wouldn't expect Midwesterns to cover the risks of higher conforming loans.

If the high-cost areas like Coastal California, South Florida, the Northeast, and Hawaii need to subsidize the risks of high-cost loans, let them do it themselves.

I just don't see why someone like my family, who lives in Tallhassee, should subsidize the risk of those folks who choose to live in Manhattan or San Francisco.

I guess I'm just selfish that way.

I was going to write what Steve wrote, but I see he's already expressed it so eloquently! By the way, I agree with him AND I live in San Jose, CA (where I am currently a happy renter until prices drop the 30-40% they're going to have to drop for buying to make sense.)

I think I will write to my Congresscritters and say the opposite. Thanks for the reminder!

-Erica

The lower loan limits would reduce access to affordable loans to residents of 99 high cost counties across 18 states .
Imposing a lower loan limit would greatly impact the economies by restricting the availability of credit, the availability of affordable home loans, and the availability of assistance to the middle income families in these communities who are struggling to stay in their homes So think wisely towards the loan limits.
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Aditi