Needed Legislative Action

February 12, 2008

Strategic legislative changes relating to housing is a key element in efforts to avoid recession and turn the housing market in an upward, positive direction. That’s the view of most real estate experts who are analyzing the current real estate market. But precisely what those changes should be is the focus of intense discussions today. Changes that clearly benefit consumers, particularly home buyers and sellers, are often resisted by legislators facing political pressures.

The Federal Reserve Board’s aggressive action in cutting the Fed rate substantially in recent weeks will help in stimulating the economy and keeping mortgage rates low. It’s now at the lowest rate since 1982. The president’s announced "stimulus package" plan to help homeowners and the economy sounds like a constructive step to avoid deepening problems. But it lacks specific details, and certain important steps affecting housing are needed in the plan, according to organized real estate groups.

One point often raised by real estate experts is the importance of loosening constraints of Fannie Mae and Freddie Mac, government-sponsored enterprises that buy existing mortgages. They need to raise their maximum loan limits. "We believe that any stimulus package must address housing issues and increasing the conforming loan limits of those two enterprises," said Dick Gaylord, president of the National Association of Realtors. "The increase in loan limits would not only improve liquidity in the mortgage marketplace, but also boost homebuyers’ confidence levels, resulting in increased sales and economic activity."

The ceiling on loans being purchased today by the two enterprises is $417,000. Many real estate leaders want this increased to at least $625,000. "This change would permit more families to enter the housing market by making more mortgages available with lower interest rates," Gaylord said. "Increased home sales will lower inventories and immediately start stabilizing the housing market and the economy."

Mortgage loans of more than $417,000 are known as jumbo loans. They are usually harder to obtain and carry higher rates than conforming mortgages. By lifting the loan limit to $625,000, it would lower interest payments for consumers who must now obtain a jumbo loan, reduce the supply of homes on the market, strengthen home prices by two to three percentage points, and increase economic activity by $42 billion, according to NAR estimates. Also, by increasing conforming loan limits it would help reduce foreclosures by 140,000 to 210,000 and result in an additional 348,000 home sales.

Posted in Lending, Real Estate