OFHEO to Set Loan Limits For GSEs

WASHINGTON – Expressing his mistrust of the “informal procedure” used by Fannie Mae and Freddie Mac to annually adjust the conforming loan limit of the loans they purchase, the Office of Federal Housing Enterprise Oversight announced last week it is establishing a regulatory process for annual adjustments to the housing Government Sponsored Enterprises’ conforming loan limit. In making the announcement, OFHEO Director Armando Falcon Jr. said the agency’s decision followed a review of concerns raised by the 2004 loan limit calculations. In that review, OFHEO determined that the 2004 limit adopted by Fannie Mae and Freddie Mac “failed to incorporate a necessary adjustment factor brought on by methodological changes in the Federal Housing Finance Board’s Monthly Interest Rate Survey.” In an OFHEO release, the agency stated that, “The improper calculation resulted in a conforming loan limit of $333,700, which is $2,300 higher than it would have been if this adjustment had been made.” In his letter to the GSEs, Falson said the adjustment that should have been made in 2004 will be included into the 2005 calculation. “From now on, OFHEO will announce its annual calculation of the maximum conforming loan limit based on the MIRS survey. OFHEO will consider the purchase by Fannie Mae or Freddie Mac of any mortgage above that amount to be an unsafe and unsound practice.” Falcon further stated that, “It is my feeling that these steps will minimize future risk and ensure a fair and accurate calculation that will benefit the nation’s consumers and housing finance markets.”