2023 conforming limits are too high, Housing Policy Council argues

A conforming loan limit higher than $1 million is a cause of concern about the future of the real estate finance system, a statement from the Housing Policy Council said.

The Federal Housing Finance Agency raised the single-unit ceiling to $726,200 for most of the country, but in certain high cost areas, Fannie Mae and Freddie Mac will be able to purchase mortgages up to $1,089,300, it announced this week.

“Crossing the million-dollar threshold should cause Congress, the Biden Administration, and all other stakeholders to actively consider how our housing finance system operates today,” the HPC statement said. The trade group is headed up by Ed DeMarco, the acting FHFA director during the Obama Administration.

The statement made three specific points: Higher limits exacerbate the affordability crisis; the current system is overly reliant on the federal government’s backing; and private capital needs to have more of a role in the housing finance system.

“Taxpayer backing of ever-increasing loan sizes provides a subsidy that results in slightly lower mortgage rates which, in turn, encourages people to buy more expensive homes,” the statement said. “Ultimately, such backing feeds the run-up in house prices, exacerbating the affordability challenges we face in today’s supply constrained marketplace.”

Higher loan limits mean more loans that might have gone into either private-label securitizations or held in whole loan portfolio instead can be purchased by the government-sponsored enterprises.

However, jumbo mortgage loans as of Tuesday were priced lower, at 6.5% than either conforming (6.583%) or Federal Housing Administration-insured mortgages (6.512%), according to data from Optimal Blue.

“The question of the appropriate role of the government in the housing finance system has gone unanswered now for 14 years,” the statement read. “The Housing Policy Council urges Congress and the Biden Administration to take up this question soon.”

On the other side of the spectrum was the California Association of Realtors, whose members sell homes in a state where many locations are among the most expensive in the nation. Its residents are entitled to the same access to safe and affordable financing that Fannie Mae, Freddie Mac and FHA provide in other states, the group argued.

“The higher limits will help make homeownership more accessible to Californians across the state and provide homebuyers with more financing opportunities,” said C.A.R. President Jennifer Branchini, a Bay Area Realtor, in its press release. “This year in California, nearly one out of every four homes sold between $1.25 million and $2 million were purchased by first-time homebuyers.”