The National Association of Realtors (NAR) recently produced an email campaign that seeks to harness its legions of member Realtors specifically to urge congress to include the conforming loan limit provision of the economic stimulus package.Not only has the “temporary” increase to the conforming loan limit been approved by the house, influential representatives are now calling for the conforming loan limit increase to become permanent.
"While I would have preferred the stimulus package to incorporate a permanent increase and other elements of the FHA Modernization bill passed by the House, this temporary measure will ensure that FHA can help distressed borrowers and new homeowners in high cost housing markets like California at this critical time." – Rep. Maxine Waters (D-CA)
“Increasing the loan limits is a very important step in stabilizing the mortgage market and helping consumers refinance, … I look forward to working with the Senate to make these changes permanent.” – Rep. Barney Frank (D-MA)
The following is the text of an email that I have sent to my senators regarding the proposed changes.
If you agree with the sentiment and spirit of this letter, PLEASE consider clicking the following link in order to send it to your senators as well.
CLICK HERE TO SEND TO YOUR SENATORS
Dear Senators:
I am writing you to express my deepest concern that Congress is about to make one of the most severe economic policy miscalculations in modern times.
By increasing the conforming loan limit for GSE sponsored loans to 125% of an area’s median home price (up to $729,750), Congress is effectively doing the following:
1. Interfering with the fundamental “free market” clearing process that is the necessary natural outcome of and most immediate remedy for the deflation of the historic national housing bubble that was brought about by many years of unhealthy and largely unregulated conditions in the real estate, mortgage and finance industries.
2. Subjecting the GSEs (Fannie Mae and Freddie Mac), critical linchpins in the stability of both the housing and general economy, to additional pressures that had never been anticipated or outlined as part of their original or ongoing charters.
3. Creating a severe “moral hazard” thus allowing and even encouraging existing and new home owners/buyers to ignore risk and repeat mistakes that we now know carry harsh consequences.
4. Endorsing both a grossly unequal treatment of the American people as well as laying the foundation of an immense socialized bailout of the wealthy.
As certain as the national housing bubble had inflated upon popular but unwise notions of unparalleled potential for immediate wealth, so certain too will be its steady deflation now that those notions were proven false.
There is NO way to prevent or otherwise mitigate the deflation we are now experiencing in our housing markets and its decline will simply provide another example in a lengthy list of typical economic crashes in recorded human history.
Increasing the conforming loan limit is not merely a futile effort but, in fact, may prove to be the single greatest threat and injury to the stability of the overall economy.
As you may already know the GSEs now guarantee over $5 Trillion worth of mortgage backed securities much of which was originated after the year 2000 when the national housing mania was most exuberant.
As home prices continue to fall, much of this debt will predictably go bad… it is a statistical certainty.
It’s important to understand that, contrary to the current consensus view and popularly reported belief, subprime debt is only the “tip of a far larger iceberg”.
Having just entered the price “free-fall” phase of the housing correction (as shown so clearly in the latest results of the S&P/Case-Shiller HPI for ALL 20 major metro markets) in the fourth quarter of 2007, we are just now on the verge of realizing the extent to which this period will affect ALL grades of mortgages and borrowers.
Expanding the role of the GSEs during a period where the dangers they may face have yet been fully realized is more than imprudent… it is simply reckless.
And what of the participants who would make most use of the increased limit?
The dramatically higher loan limit would allow the country’s most affluent individuals located in the metropolitan housing markets to receive the benefit of a loan carrying an “implied” government guarantee that had been originally intended to help the poor and the middle class.
Enabling extremely affluent home buyers/owners to purchase/refinance homes costing $915,000 DOES NOT qualify as assisting in the process of providing “affordable housing”.
It has been shown that these metro markets were the most exaggerated during the era of the housing bubble where market participants routinely ignored risk instead choosing to accept and even rely on popularized misconceptions related to home price stability, appreciation and housing demand.
As a result, prices inflated far beyond the reach of most creating an epidemic of “affordability” problems for residents, local governments and businesses.
But with the unwinding comes a reassertion of healthy long term fundamental trends in the valuation of residential real estate that will again bring balance back to local economies.
There will undoubtedly be a significant disruption created by this unwinding but who better to shoulder this burden than America’s most well-off, and consequently the most active and risky, market participants.
Bailing out these individuals risks putting the GSEs in further jeopardy of becoming insolvent.
In the event of that very plausible outcome, generations of middle class taxpayers will be the real losers, paradoxically, of a benefit intended to strengthen and enhance their economic condition.
I urge you to reconsider your support of the inclusion of this provision of the economic stimulus package.
