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Congressman Gary Ackerman (D-New York) sent a letter to House Appropriators Thursday urging them to extend the temporarily increased conforming loan limit that will otherwise expire October 1. Ackerman was joined by 36 members of Congress in his request.
[IMAGE]Ackerman suggested the conforming loan limit extension be built into the continuing resolution that will keep the federal government functioning after October 1, when the new fiscal year begins.
The conforming loan limits were increased in 2008 to help stabilize the housing market. Ackerman argued that the market is still struggling and a decrease in the limits would have a strong adverse effect on the market.
In his letter, Ackerman stressed that the FHA and the GSEs are insuring the majority of loans because ""private lending entities have been overwhelmingly risk-averse in the wake of the recent economic crisis.""
[COLUMN_BREAK]""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,"" Ackerman wrote.
However, Martin S. Hughes, president and CEO of Redwood Trust, believes the private sector is ready to lend, but the government is precluding their intent.
""[T]he government is crowding out private securitizations, by maintaining an abnormally high conforming loan limit and by subsidizing the guarantee fees that the GSEs charge issuers,"" Hughes stated at a hearing Wednesday titled ""Facilitating Continued Investor Demand in the U.S. Mortgage Market Without a Government Guarantee.""
Private securitizers cannot compete with the government and are only able to securitize ""the small volume of prime quality loans beyond the government's reach,"" Hughes argued.
""The government must begin to reduce its participation in the mortgage market, and allowing the temporary increase in the conforming loan limits to expire at the end of September 2011 would be a good first step,"" Hughes said.
Ackerman did assert that an extension of the conforming loan limit would be a short-term extension and Congress should continue to work on attracting private capital to the market and defining the role government will play in the market in the future.
