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OFHEO Issues Final Guidance On Conforming Loan Limit Calculations

March 26, 2008

Washington, DC – The Office of Federal Housing Enterprise Oversight (OFHEO) has transmitted to the Federal Register a final Examination Guidance—Conforming Loan Limit Calculations. The final Guidance addresses the handling of decreases in the house price data used to set the conforming loan limit as well as procedural matters relating to calculation of the limit that determines the size of mortgages eligible for purchase by Fannie Mae and Freddie Mac.

Based on comments received in two public comment periods, OFHEO is issuing a final Guidance that provides that the conforming loan limit would not decrease from its current level of $417,000 in 2009 and subsequent years. However, the conforming loan limit will not increase until cumulative increases in house prices exceed cumulative decreases since the $417,000 limit was first reached.

“This revised Guidance responds to the comments that we received and OFHEO’s belief that stability in the mortgage market is very important,” said OFHEO Director James B. Lockhart. “Not decreasing the limit will eliminate potential operational and implementation issues. This announcement has no impact on the temporary increase in the conforming loan limit for high-cost areas recently established in The Recovery Rebates and Economic Stimulus for the American People Act of 2008, which expires on December 31, 2008,” Lockhart said.

The conforming loan limit is adjusted annually through a calculation of year-over-year October changes to the level of home prices based on data from the Federal Housing Finance Board’s (FHFB) Monthly Interest Rate Survey (MIRS). As many commenters suggested, the small and voluntary MIRS price survey is volatile, which is another reason for this guidance to emphasize stability. Pending GSE reform legislation would allow the selection of a broader and more comprehensive price index.

For the purpose of simplification, the new Examination Guidance also provides that increases in the conforming loan limit will be rounded down to the nearest $100, instead of the present $50.

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