U.S. Rep. Gary Ackerman (D-NY), joined by a bipartisan group of 36 Members of Congress, today called for a short-term continuation of higher conforming mortgage loan-limits which are set to expire at the end of this month. In a letter to the chairmen and ranking members of House Appropriations panels, the lawmakers urged the appropriators to extend the conforming limits in order to avoid a severe decrease in mortgage availability in "high-cost" areas, such as the New York/Long Island Metropolitan area. Without the current limits, fewer mortgages would be eligible for the guarantees provided by Fannie Mae, Freddie Mac and the Federal Housing Administration. Private mortgage-lenders would have to assume the risk for mortgage loans above the lowered limits, something they have been unwilling to do in a weak housing market without passing the additional risk onto homebuyers in the form of higher interest rates and larger down payments, both of which would depress the housing market further.
Ackerman's letter urges House Appropriators to include a conforming loan-limit extension in the anticipated continuing resolution, a temporary funding measure that would keep the federal government running when the 2012 fiscal year begins on October 1. An extension for the higher loan-limits was included in the fiscal year 2011 continuing resolution.
The conforming loan-limits were originally increased in 2008 to stabilize the housing market and to provide federal backing to more mortgage loans during the economic crisis. However, as Ackerman and his colleagues point out in their letter, the housing sector remains deeply troubled. The market has been plagued by steep price declines and a catastrophic foreclosure crisis. Currently, four million homeowners are either seriously delinquent on their mortgage payments or in foreclosure and a staggering 11 million homeowners are "underwater," owing more on their mortgage than their homes are actually worth. If Congress does not act before the September 30th deadline, the conforming loan-limits will automatically be lowered in 669 counties across 42 states, jeopardizing access to mortgage credit and draining liquidity from the anemic housing market.
Ackerman urged the senior members of the House Appropriations Committee to carefully consider how the impending loan limit reduction would affect the beleaguered housing market. In the New York City and Long Island region, the loan limit will fall from $729,750 to $625,500 on October 1. This reduction is scheduled to occur despite the fact that New York homeowners have the highest level of negative equity in the country. The average "underwater" New York homeowner owes $129,000 more than their home is worth.
"Time is running out," said Ackerman, a Senior Member of the House Financial Services Committee. "Middle-class homeowners are enduring the most painful housing crisis since the Great Depression. In just a few short weeks the pain of the crisis is set to become more acute since mortgage credit for many eligible buyers will evaporate. This horrendous outcome is utterly avoidable and I urge members of the Appropriations Committee to join my fight to provide short-term support to the housing market by extending the conforming loan limits in the upcoming continuing resolution."
This past July, Ackerman and Rep. John Campbell (R-CA) introduced the Conforming Loan Limits Extension Act (H.R. 2508) which would extend the current conforming mortgage limit of $729,750 for two full years, requiring it to remain in place through October 1, 2013.
Below is the text of Ackerman's letter and a list of all the signatories.
The Honorable Harold Rogers
Chair, House Appropriations Committee
2406 Rayburn House Office Building
Washington, DC 20515
The Honorable Norm Dicks
Ranking Member, House Appropriations
2467 Rayburn House Office Building
Washington, DC 20515
The Honorable Tom Latham
Chair, House Appropriations T-HUD
2217 Rayburn House Office Building
Washington, DC 20515
The Honorable John Olver
Ranking Member, House Appropriations T-HUD Subcommittee
1111 Longworth House Office Building
Washington, DC 20515
Dear Chairman Rogers, Ranking Member Dicks, Chairman Latham and Ranking Member Olver:
We write to urge you to include an extension of the conforming loan limits that are currently eligible for Federal Housing Administration (FHA) and Government Sponsored Enterprise (GSE) insured mortgage loans in any continuing resolution measure that would begin on October 1st, 2011. A reduction in the conforming loan limits below the Continuing Appropriations Act of 2011 (P.L. 111-242) levels will have painful economic consequences. With only 11 scheduled legislative days remaining prior to the end of the current fiscal year it is virtually assured that any FY2012 Transportation, Housing and Urban Development (THUD) appropriations bill would not become law before September 30th, 2011.
If Congress does not act by October 1st the housing market in 669 counties across 42 states will face an immediate economic headwind as liquidity is drained from a large segment of the market. For example, the FHA loan limit that applies to Miami-Dade County, Florida will fall from $423,750 to $345,000 a 19% percent reduction; the Clarke County, Virginia limit will be reduced from $729,500 to $625,500; Middlesex County, Massachusetts will face an 11 percent reduction; and King County, Washington will be reduced by 10 percent. In each of our districts, the loan limit will drop by 14 percent and the list goes on across the entire country.
The reality is that the FHA and the GSEs are currently insuring the vast majority of new mortgage originations because private lending entities have been overwhelmingly risk-averse in the wake of the recent economic crisis. We cannot-at this time-rely on private lenders to provide reasonably-priced, long-term, fixed-rate mortgages when they have showed great reluctance to do so over the past few years. Forcing this transition in an anemic housing market, before the private market has shown a willingness to take on additional mortgage risk will produce sub-optimal results for the housing market and the economy. The current state of the housing market demands further short-term stabilization. During this short-term extension Congress must continue to work towards creating a comprehensive, long-term framework for mortgage finance that attracts private capital and includes an explicit role for government.
Reducing the limits prematurely will negatively affect an already weak market causing housing prices to slide further which would trigger more defaults and larger price declines. It is crucial that Congress provides short-term support to homeowners and the economy by extending the conforming loan limits in any FY2012 continuing resolution.
Representatives Gary Ackerman, John Campbell, Judy Speier, Carolyn Maloney, Gregory Meeks, Sam Farr, Barney Frank, Jim Costa, Eliot Engel, Edolphus Towns, Luis Gutierrez, James Himes, Adam Smith, Lois Capps, Tammy Baldwin, Lynn Woolsey, Donna Edwards, Wm Lacy Clay, Joseph Crowley, Michael Capuano, Mazie Hirono, George Miller, Melvin Watt, Bob Filner, Steve Israel, Steve Cohen, Barbara Lee, Maurice Hinchey, Charles Rangel, Timothy Bishop, Rosa DeLauro, Peter Welch, Ruben Hinojosa, Gwen Moore, Maxine Waters, Jay Inslee, John Lewis.