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Loan Limit Extensions Safe for Now but November Elections Could Change This

(10/12/10)

Mortgage Bankers, along with their affiliated trade groups, lobbied Congress hard for the continued extension of the current GSE loan limit of $729,750. Concerns about the potential inaction of a lame duck Congress following the November elections forced the industry into taking action now in an effort to curb a potential breakdown in the operations of the mortgage market. The consequence of not providing the extension would be for the GSEs and FHA loan limits to revert back to a maximum of $625,000 effective January 1, 2011. However it is likely to be the last of such extensions and by next September of 2011, lenders may be looking at a new even lower limit. Lenders should make the most of this extension for the next 12 months and prepare for it to come to an end. This extension also applied to FHA-insured reverse mortgages along with providing a $20BB infusion of funds for the FHA's multi-family loan program. While the political tide in Washington may lean towards supporting housing during these strained economic times, the potential incoming wave of new in Congressmen could be anxious to scale down the troubled GSEs Fannie Mae and Freddie Mac to a manageable size. Though the taxpayers have spent approximately $160MM to date on the Fannie/Freddie bailout, the final tab, it is estimated, will reach the horrific trillion dollar mark. The GSEs will need to be dealt with by Congress sooner or later and the outcome will likely leave both lawmakers and taxpayers equally displeased.

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