Oct152013

realtors desperately lobby for higher loan limits to support housing

Lower limits on conforming loans guaranteed by the GSEs or the FHA will lower sales volumes and prices in the price ranges no longer financeable with government loans. Everyone who understands the relationship between easy-money financing and aggregate house prices knows this, and those most interested in reflating the housing bubble and maintaining sales volumes (realtors mostly) are doing everything possible to make sure these conforming loan limits stay as high as possible. Of course, this is contrary to the greater good and the stated goals of the Obama administration that wants to reduce the footprint of government in home finance, but realtors aren’t concerned with the greater good, they are concerned about commission income.

Watching the realtor lobby work is a lesson in political influence in Washington. When the possibility of lower loan limits was first announced, realtors began a public relations campaign to scare everyone with fears of housing market Armageddon. Then, they followed with letters to regulators urging bureaucrats to keep the housing realtor commission subsidies in place. Finally, they organized their minions who they control with their campaign contributions and had legislators write letters for them also urging bureaucrats to keep the money flowing irrespective of the taxpayer costs.

Real-Estate Industry Calls for Delay on Loan-Limit Decline

By Nick Timiraos — October 8, 2013, 6:59 PM

The real-estate industry asked the Federal Housing Finance Agency in a letter Tuesday to delay any proposed reduction in maximum loan amount that Fannie Mae and Freddie Mac can purchase.

The agency said in August it was considering a reduction in the loan limits, which are set at $417,000 for most of the U.S. but rise to as high as $625,500 in high-cost housing markets such as Los Angeles and New York. Officials had initially said any decline would take effect by Jan. 1, but in recent weeks discussions have turned to delaying any such decline. People familiar with the talks have said declines could be announced later this year and implemented in the spring.

Due to the seasonal nature of home sales, it would we wiser to implement any change in April or May so the disruption to the market is minimized by the seasonal strength. That being said, any delay will be an excuse for more lobbying to prevent implementation entirely.

The fact that the discussion has moved from the “should we do it” to the “when will it happen” stage as a sign that the lower loan limit will become reality.

Tuesday’s letter was sent by a handful of industry groups including the National Association of Realtors, the Mortgage Bankers Association, and the National Association of Home Builders.

The usual suspects are pleading for their subsidies. Let them eat bad loans.

The groups argue that forthcoming lending regulations that are part of the Dodd-Frank financial-overhaul law, some of which become active in January, already threaten to constrain mortgage activity. “Please do not further complicate this time by changing the mortgage loan limits at this time,” the letter reads.

This is actually a resonable request given the issues implementing Dodd-Frank will cause. Although the argument can also be made that this should all be done at once so the market doesn’t face future uncertainties.

The letter also challenges the legal authority for the FHFA to reduce those limits, reiterating concerns raised last month by the Realtors group. The Mortgage Bankers Association has said that it supports a decline in the limits but that it should be deferred until later next year.

If I were a bureaucrat, challenging my legal authority to act would piss me off. If the industry is looking for cooperation, this isn’t the way to get it.

Lawmakers to DeMarco: You Can’t Reduce Loan Limits

This headline is somewhat misleading. It implies an act of Congress is stopping the bureaucrats from lowering the limits. If Congress were to pass such legislation, it could prevent it, but that isn’t what happened. This is merely a letter from those Congressmen bought and paid for by the NAr. It has no legal standing whatsoever.

By Nick Timiraos — October 10, 2013

To get a sense of how difficult the process of overhauling Fannie Mae and Freddie Mac will be, witness the latest kerfuffle over whether the companies’ regulator should drop the maximum loan limits.

In a letter released Thursday, some 66 members of the House of Representatives—59 Democrats and 7 Republicans—called on the Federal Housing Finance Agency to drop previously announced plans to reduce the limits. …

Now we know how many politicians are beholden to the NAr.

The letter from lawmakers suggested that Edward DeMarco, the acting director, didn’t have the authority to unilaterally drop loan limits, and it used Mr. DeMarco’s prior testimony before Congress to argue their case. “I don’t intend to act unilaterally in lowering the loan limit because the Congress of the United States has been so actively and repeatedly involved in adjusting the conforming loan limit,” he said during a 2011 hearing.

The move would be “inconsistent with my responsibilities as conservator,” he added. “I really and truly believe that the Congress of the United States is the body that should make the determinations about the future path of the loan limit if it is going to be something other than what current law provides.”

Lawmakers responded thusly in their letter: “We could not agree more.”

This is maddening. The voice of 66 members of the House of Representatives does not reflect the collective will of Congress. For them to suggest it does is complete bullshit.

The FHFA first announced the policy change was under consideration on August 6, after President Barack Obama’s speech on the housing market. A companion memo from the White House called on the FHFA to “closely examine” using existing authority “to reduce loan limits further consistent with the pace of the recovery [and] market developments.”

With the administration also asking for caution, I foresee a delay as inevitable, but it also seems likely the lower limits are going to happen.

While most lawmakers have said they believe Fannie and Freddie need to be replaced, Congress has been slow to take action to press for an overhaul, though discussions have heated up in recent months. Absent clear direction from Congress and the White House, the FHFA has kept the companies in a holding pattern.

Along with raising fees that Fannie and Freddie charge to lenders, reducing loan limits are a major lever to reduce the firms’ large presence in the mortgage market. Large banks and private firms that have stepped up issuance of mortgage-backed securities without government backing have said that modest declines in the loan limits would help spur more private lending, though some have conceded borrowers without 20% down payments or pristine credit scores could face fewer options for getting a mortgage.

If we don’t begin to take measures like this, the US housing market will become permanently dependent upon government subsidies. That will be the lasting legacy of the housing bubble.

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3299 VIA CARRIZO Unit O Laguna Woods, CA 92637

$175,000 …….. Asking Price
$130,000 ………. Purchase Price
6/24/1994 ………. Purchase Date

$45,000 ………. Gross Gain (Loss)
($14,000) ………… Commissions and Costs at 8%
============================================
$31,000 ………. Net Gain (Loss)
============================================
34.6% ………. Gross Percent Change
23.8% ………. Net Percent Change
1.5% ………… Annual Appreciation

Cost of Home Ownership
——————————————————————————
$175,000 …….. Asking Price
$6,125 ………… 3.5% Down FHA Financing
4.30% …………. Mortgage Interest Rate
30 ……………… Number of Years
$168,875 …….. Mortgage
$69,438 ………. Income Requirement

$836 ………… Monthly Mortgage Payment
$152 ………… Property Tax at 1.04%
$0 ………… Mello Roos & Special Taxes
$36 ………… Homeowners Insurance at 0.25%
$190 ………… Private Mortgage Insurance
$580 ………… Homeowners Association Fees
============================================
$1,794 ………. Monthly Cash Outlays

($8) ………. Tax Savings
($231) ………. Principal Amortization
$10 ………….. Opportunity Cost of Down Payment
$42 ………….. Maintenance and Replacement Reserves
============================================
$1,607 ………. Monthly Cost of Ownership

Cash Acquisition Demands
——————————————————————————
$3,250 ………… Furnishing and Move-In Costs at 1% + $1,500
$3,250 ………… Closing Costs at 1% + $1,500
$1,689 ………… Interest Points at 1%
$6,125 ………… Down Payment
============================================
$14,314 ………. Total Cash Costs
$24,600 ………. Emergency Cash Reserves
============================================
$38,914 ………. Total Savings Needed
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