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Fed: Lower Jumbo Loan Limits Unlikely to Crimp Markets

Ahead of lower limits for conforming jumbo loans, nearly assured in October as Congress disagrees even over stopgap spending bills, the ""Federal Reserve"":http://www.federalreserve.gov/ offered a revealing look at the market Friday by releasing a report on the health of the housing market. The consensus: falling limits will likely only nudge the jumbo loan market, not tip it over, as some critics claim.

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Culling information from data obtained under the Home Mortgage Disclosure Act, the Fed summed up the state of the housing and mortgage markets by issuing ""_The Mortgage Market in 2010_"":http://federalreserve.gov/pubs/bulletin/2011/pdf/2010_HMDA.pdf.

The Fed found that the current criteria for a jumbo fences in only 1.3 percent of all loans backed by GSEs ""Fannie Mae"":http://www.fanniemae.com/kb/index?page=home and ""Freddie Mac"":http://www.freddiemac.com/. Homeowners with jumbo mortgages qualify for federal insurance if their loans stay under a $729,750 threshold ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô a benefit that lawmakers extended in order to boost sagging markets at the height of the financial crisis in 2008.

Even so, data uncovered by the central bank revealed that some 2.1 percent of 2010 mortgages, alongside 2.4 percent of refinance loans, would see some pushback from the change once Congress allows the limits to expire.

The Fed noted in the report that it is ""difficult to know what options will be available for homeowners no longer eligible under the GSE or [""Federal Housing Administration"":http://portal.hud.gov/hudportal/HUD?src=/federal_housing_administration] programs.""

The report cited ""HUD"":http://portal.hud.gov/portal/page/portal/HUD analyses documenting about 669 counties with jumbo loans likely to feel pinched once the limits depress. Another study by the ""Federal Housing Finance Agency"":http://www.fhfa.gov/ fixed the number at 250 counties.

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The conforming-jumbo loan issue remains a hot-button topic among lawmakers, policymakers, and industry insiders, who say the limits are likely to fall in October.

In February the Obama administration issued a white paper advocating for an end to the higher limit, which would return the jumbo threshold for federal insurance to $625,500.

More recently, ""Sen. Richard Shelby"":http://shelby.senate.gov/public/ (R-Alabama), criticized the role of the government in mortgage markets at a Senate hearing, alleging higher loan limits created ""a lot of damage,"" according to ""Dow Jones Newswires"":http://www.nasdaq.com/aspx/company-news-story.aspx?storyid=201109221559dowjonesdjonline000519&title=housing-lobby-in-rare-defeat-on-mortgage-limits.

Despite sizzling rhetoric, the Fed satisfied advocates for federal stimulus by portraying the homebuyer market as one that would have lost big, along with a number of industry sectors, should Congress have failed to raise the threshold for jumbos.

In absence of higher limits, the national jumbo loan market may not have swelled by 50 percent, alongside 63-percent boosts in the refinance jumbo market, as the financial crisis lessened.

The Fed said that lenders in affected counties may not have been able to service the loans, likely resulting in turned-away homebuyers or loans that never happened.

Not all conclusions from the report favored government activity in the mortgage markets.

The Fed said that the federal homebuyer tax credit, enacted by officials eager for solutions, ""likely stimulated homebuying in 2009,"" but led to a ""sharp falloff in the monthly flow of new home-purchase originations"" once their expiration came in 2010.

Speaking to _MReport_ for a past story, ""Maureen Maitland"":http://www.housingviews.com/author/maureen_maitland/, VP of indices for ""Standard & Poor's"":http://www.standardandpoors.com/home/en/us, described the credits as ""artificial stimulus"" responsible for creating a blip in the markets that inadvertently raised consumer confidence and industry expectations.

She faulted the tax credit for leaving market watchers with the impression that the economy has entered a double-dip recession, with home sales plunging last year.

""You need to do more than just throw money at problems,"" Maitland said. ""Jobs and supply-demand factors need to be in sync.""

About Author: Ryan Schuette

Ryan Schuette is a journalist, cartoonist, and social entrepreneur with several years of experience in real-estate news, international reporting, and business management. He currently lives in the Washington, D.C., area, where he freelances for DS News and MReport.
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