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Dear Speaker Boehner:

On behalf of the 362,000 members of the National Taxpayers Union (NTU), I urge you to oppose any language extending the Federal Housing Administration’s (FHA’s) higher conforming loan limits during the conference process on the “minibus” appropriations bill. Returning these limits to extraordinarily high TARP- and stimulus-era levels only serves to increase the size of potential taxpayer liabilities while also creating a substantial impediment to winding down the federal government’s harmful interference in the housing market.

During the housing crisis and subsequent liquidity crunch (in no small part caused by the government’s own disastrous policies) Congress allowed the FHA to insure, and government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac to purchase, mortgages at generous rates: up to 125 percent of an area’s median home price in 2007, or $729,750, whichever was lower. On October 1^st of this year, these limits were modestly reduced as scheduled to 115 percent and $625,500, respectively – rates substantially higher than the $417,000 ceiling prior to the recession.

Reversing these sensible reductions to conforming loan limits would do little to boost the housing market, while posing a large additional risk to taxpayers who have already felt the sting of more than $150 billion in bailouts to Fannie and Freddie. Allowing the GSEs to purchase loans of such an extraordinary size (more than three times the median home price), whether offset by a fee or not, is simply an unjustifiable taxpayer-backed benefit for well-to-do home buyers. Indeed, of the more than 1 million FHA-insured mortgage purchases in 2010, a mere 4,650 (0.46 percent) were above the $625,500 limit.

Rather than raising conforming loan limits, the best method to protect taxpayers and hasten the return of a healthy market is to gradually wind down the federal government’s distortionary involvement in the housing sector. There is considerable evidence to suggest that private entities would be capable of providing the necessary capital were they not forced to compete with entities like Fannie Mae and Freddie Mac who can borrow at below market rates due to their federal guarantee. Following the announcement of the lower loan limits in August, and their implementation through September, the Commerce Department reported that new home sales rose by 5.7 percent – hardly revealing any immediate need that justifies taxpayer exposure to more loans.

Continuing to provide federal backing to these jumbo loans will only delay the much-needed transition away from government meddling in the housing market. Therefore, NTU hopes you will work with conferees to ensure taxpayers are protected from any misguided effort to boost conforming limits. 

Sincerely,