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Request by California representatives to the Banking and Financial Services committees, to refrian from lowering the maxium Calfornia Home Loan limit
Dear Chairman Dodd, Ranking Member Shelby, Chairman Frank and Ranking Member Bachus:
We would like to thank you again for your leadership on the Economic Stimulus Act of 2008, which included language to increase temporarily the loan limits for the Federal Housing Administration (FHA) and the Government Sponsored Enterprises (GSEs), Fannie Mae and Freddie Mac. As the House and Senate move toward a compromise on housing legislation, we urge you to include provisions in H.R. 3221 that would make the loan limits permanent.
The temporary loan limit increases for FHA and the GSEs, as implemented by the Economic Stimulus Act, are starting to provide much needed mortgage liquidity to the marketplace. Recently, the higher loan limits have made safe and affordable loans accessible to homebuyers in high-cost areas of the country that have been absent for so many years. In fact, the loan limit increase has benefitted communities in twenty-seven states across the nation and may continue to do so if the limits are made permanent. With record high gas prices, especially, it is important for middle income families headed by firefighters, police officers, teachers and nurses, to be able to afford to live in the communities they serve.
The Senate’s proposal to lower the maximum loan limit from $729,750 to $625,500 would severely restrict access to affordable mortgages for 21 million people in California alone, or over half of the State’s population. In addition, in California, which has one of the highest foreclosure rates in the country, lowering the area median home price formula would limit homeowners’ opportunity to refinance out of current mortgages and into safer loans in 56 out of 58 counties in California. The provisions would greatly reduce access to affordable mortgages for 100 million hardworking Americans in the District of Columbia and portions of California, Colorado, Connecticut, Florida, Idaho, Maryland, Massachusetts, Nevada, New Jersey, New York, North Carolina, Pennsylvania, Utah, Virginia, West Virginia and eleven other States.
The entire economy is currently being affected by increasing delinquency and default rates among homeowners across California and this nation. As we have seen, the current wave of foreclosures is primarily due to adjustable rate subprime mortgages with low introductory rates resetting at significantly higher levels. According to housing experts, a second wave of foreclosures can be expected in the next few years as a majority of the negative amortization and interest only loans—which often have five-year teaser rates—begin to reset. If Congress does not act to permanently increase the loan limits, which expire on December 31, 2008, safe and affordable refinance options will cease to exist for these homeowners.
Furthermore, if Congress enacts lower loan limit levels, the secondary market will likely adjust to the new limits, making the current increases enacted to help stabilize and provide liquidity to the marketplace completely irrelevant. Merely proposing to decrease the loan limits creates uncertainty in the market and has the exact opposite impact of the Economic Stimulus Act on the nation’s housing market.
Congress has an opportunity to help maintain and restore homeownership and bring long-term stability to the marketplace by making permanent both the temporary loan limit of $729,750 and the existing eligibility calculation of 125 percent of an area’s median home price contained in the Economic Stimulus Act of 2008 and H.R. 3221.
Thank you for consideration of this important matter and your attention to the needs of homeowners living in high-cost areas throughout the country.
Sincerely,
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DIANNE FEINSTEIN BARBARA BOXER
United States Senator United States Senator
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GARY G. MILLER ELLEN TAUSCHER
Member of Congress Member of Congress
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