PMC Mortgage Lender's Blog

On August 4th Senators Robert Menendez (D-NJ) and Johnny Isakson (R-GA) introduced the Homeownership Affordability Act of 2011 to allow the Federal Housing Administration (FHA), Fannie Mae and Freddie Mac (known as Government Sponsored Enterprises or GSEs), and the Veterans Administration (VA) to insure home loans at their current maximum levels for an additional two years.

Under current rules the existing limits are set to expire on September 30, 2011 (Dec. 31 for the VA). Passage of the new bill would extend the limits until December 31, 2013.

Three years ago Congress increased the maximum loan limit for the FHA, Fannie Mae, Freddie Mac, and the VA to 125% of local median home prices.

If the limits expire and revert back to 115% of local median home prices, the effects on the housing market and the economy would be dramatic. Loan limits would automatically fall in 669 counties and 42 states. In high cost areas the limit would fall from $729,750 to $625,500. The average decline in loan limit would be more than $68,000 per county. Access to mortgage credit would be significantly impeded for many home owners and buyers across the country.

According to Ron Phipps, President of the National Association of REALTORS (NAR) in a letter supporting the proposed legislation, "If the limits fall, 59% of all existing homes will be ineligible for FHA mortgage financing. More than 5 million homes will be ineligible for GSE financing."

According to NAR, many lenders have already begun rejecting applications at the higher limits, fearing the loans won't close prior to the reset.

NAR, along with the Mortgage Bankers Association and the National Association of Homebuilders support the new bill.

Passage of the Senate version of The Homeownership Affordability Act of 2011 will come with the added cost of increased guarantee fees or "g-fees" charged by the loan guarantors such as Fannie Mae and Feddie Mac to the lenders.

Several Bills have been also been introduced in the House of Representatives, but legislative work will not continue until Congress returns from their August Congressional recess.

The legislation is co-sponsored by Senator Dianne Feinstein (D-CA).