Fannie Mae and Freddie Mac will not be reducing loan limits, the new director of the Federal Housing Finance Agency (FHFA) announced last week. FHFA Director Mel Watt’s decision not to direct the government-sponsored enterprises (GSEs) to lower the limits for home loans that they back is a major shift in direction of his predecessor, who favored winding down their role in mortgage finance.

The conforming loan limit will remain at $417,000 in most areas and at $625,500 in high-cost areas like Santa Clara and San Mateo counties. Watt also said the agency was taking steps to loosen mortgage credit by easing standards on when banks could be forced to buy back some loans sold to Fannie and Freddie.

A conforming loan limit is the maximum size for loans that can be purchased by government-sponsored enterprises Fannie Mae or Freddie Mac. Mortgages purchased by Fannie Mae and Freddie Mac are generally less expensive than the larger jumbo loans because the government absorbs the cost of default.

Watt’s announcement is good news, especially for California home buyers, said David Tonna, president of the Silicon Valley Association of REALTORS®. “If the FHFA were to lower the loan limits, it would force home buyers to pay more for their mortgages and undermine home ownership affordability. High-cost areas like Silicon Valley are already experiencing shrinking housing affordability,” said Tonna.

The California Association of REALTORS® (C.A.R.) immediately commended the new FHFA director’s announcement. “C.A.R. commends FHFA Director Melvin Watt for his announcement that the FHFA will not reduce loan limits on loans eligible for purchase by Fannie Mae and Freddie Mac,” said C.A.R. President Kevin Brown. “Lower loan limits would have had an adverse effect in many parts of the country, but especially here in California where rebounding home prices and decreasing home affordability would hamper mortgage activity and impact the housing recovery.”

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