1. Fannie Mae, Freddie Mac’s Home Loan Buying Limit to Be Curtailed
In a recent development that can have serious impact on high cost mortgage segment, the US
government has decided to reduce support for this sector. It may become effective in October
2014, revealed a regulator. The regulator of mortgage giants Freddie Mac and Fannie Mae
revealed a plan that will result in the two entities reducing amount of home loans they will
purchase. Since the agencies are now government controlled, the move will have some deep
impact on mortgage sector, analysts feel.
The Federal Housing Finance Agency may bring down the loan limit to $600,000 from existing
$625,500 in costlier areas of the nation. This includes cities like Washington, New York and Los
Angeles. In other areas of the country, the rate will be reduced to $400,000. However, the
regulator also added that public opinion will be sought before the implementation is done. If it is
implemented, the change will have no effect on home loans sanctioned before October 1, 2014,
said the regulator.
It is true that US housing market suffered a setback in the global economic meltdown that began
in 2008 but in last year it showed signs of recovery and growth. It was mostly fueled by low
interest rate policies of the Federal Reserve. The loan limits were hiked after 2008 to keep the
segment fluid amidst the serious economic turbulence that crippled US economy. As the market
showed signs of recovery, the regulator was planning to lower the rates.
However, the FHFA announcement has not gone down well with all as it is. A section of
lawmakers and industry leaders think that reducing loan limit may be detrimental for some
buyers and limit options for them. This may also impede recovery of the sector as per their
views. They have cautioned that investors may not feel too interested to purchase
mortgagebacked securities sans a government guarantee.
While there are some elements of doubt over the move in the industry, Washington appears
rather uneasy with its huge stake in housing sector. The regulator made it clear that US
president Barack Obama was keen on getting the limit reduced.
As a matter of fact, Freddie Mac and Fannie Mae which went under control of the US
government do not offer loans. They buy mortgages from lenders to be kept in their books. They
also bundle mortgages into securities which are offered to investors with government guarantee.
As of now, a majority of US home loans are backed by these two mortgage behemoths.
Federal Housing Finance Agency’s incoming director, Congressman Mel Watt said while
speaking on Freddie Mac and Fannie Mae, he will delay the hike in fees incurred on
governmentbacked loans announced by FHFA. Hence, if a US citizen gets finance for his home,
it may be covered by any of these entities even though he may not know it explicitly. After the
economic turmoil of 2008, the government took a number of measures to improve condition of
