Mortgage Regulations Will See Changes in the Near Future

Though mortgage regulations are set to see changes as early as January, they may not come to fruition till mid 2014. The White House has long sought to minimize the government’s role in the housing industry and promote more lending privatization. In the face of increasing signs of market recovery, President Barack Obama recently requested that government-backed Fannie Mae and Freddie Mac’s higher-priced mortgage limits be lowered by the end of 2013.

In an August statement, the White house urged HUD and the Federal Housing Finance Agency (FHFA)  to “closely examine using their existing authorities to reduce loan limits further consistent with the pace of the recovery, market developments, and the Administration’s principles and transition plan for housing finance reform.”

However, pressured by both Congress and the housing industry, The FHFA, headed by acting director Ed DeMarco, has decided that the timing is not currently right to lower mortgage limits, with DeMarco citing the necessity of focusing on other regulation changes set to affect lenders in the very near future.

DeMarco is referring to new mortgage regulations that will take place on the first of January. Scathed by staggering numbers of foreclosures during the recent housing industry implosion, the Consumer Financial Protection Bureau has implemented the Qualified Mortgage Rule, which will do away with minimal-document loans, and require lenders to provide ample proof that a buyer can, in fact, repay a prospective home loan.

The high mortgage limit takes into account the broad disparity of housing prices in different markets across the country. The real estate industry has decried any proposed drop in limits as unfair to those who are in need of government backing, but could easily be priced out if they live in a high-cost market.

For their part, Congress cited concerns about record home ownership lows, and contended that the high limit was necessary to support home ownership for the middle class. Numerous congressmen also took issue with the idea that DeMarco could unilaterally decide to lower the limit.

So, with the blessing of federal regulators, Fannie Mae and Freddie Mac will both continue funding higher-priced mortgages, at least throughout mid-2014, at which point changes will likely be made.

The FHFA has decided to make compliance with the new rules, which require a number of changes, and will take a great deal of time and effort on the part of lenders a priority.

Limits are currently back to 2008 rates of $729,750. In 2011, they briefly dropped to $625,500, but were raised again to facilitate recovery. While nothing is yet set in stone, and much depends on the direction the market takes in 2014, the limits will most likely drop next year.