The Office of Federal Housing Enterprise Oversight kept 2008 conforming loan limits purchased by Fannie Mae and Freddie Mac at $417,000, but it's considering lower limits if housing prices continue to fall. Meanwhile, The House is trying to get higher Enterprise loans limits passed, but the Senate won't cooperate.

Here's why it matters. Banks make mortgage loans, enterprises like Fannie Mae and Freddie Mac buy the loans and package them into securities so banks can make more loans. Affordability is a huge issue in many parts of the country. So, lower conforming loan limits may be good for Fannie and Freddie but it's bad for homebuyers, considering that credit has tightened for jumbo loans and home prices haven't dropped but five percent after 100 percent gains since 2000.

More buyers will be put into higher risk, non-conforming loans. Aren't record defaults on non-conforming loans one of the reasons why housing sales and prices are fallling?

Here's proof: Housing sales have dropped over 20 percent to less than a half-million housing units sold year over year. That's the October report from the National Association of Realtors. The NAR blames constipated lending. If people can't get loans, they can't BUY houses.

The news was worse from California. Home sales decreased 40 percent in October, and median home prices dropped nearly 10 percent. Not surprisingly, the California Association of Realtors blames lending problems on the sudden decline.

So if the OFHEO decides to lower conforming loan limits, that will force housing prices down even further. And that means a lot of recent homebuyers can't SELL houses.

Maybe Congress and the OFHEO should put their fiddles down and have a little summit. Housing is getting burned. And so are consumers.

Published: November 30, 2007

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