Don't forget the Jumbo risk

Posted by: Chris Palmeri on December 1, 2005

Shame on the California Association of Realtors! The trade association for real estate agents is complaining that this week’s decision by Fannie Mae and Freddie Mac to lift their single family mortgage loan limits from $359,000 to $417,000 didn’t go far enough. Never mind that this was the largest pecentage increase in the limit since 1987, the Realtors want more. California homes cost twice as much as the national average, they argue. And the new limits won’t even get you a median-priced house in the Golden State, which now stands at $538,000. The fact is: easier loan standards have been driving housing prices through the roof. Although no one is really sure what would happen if Fannie or Freddie went into default, the patina of government sponsorship that they exists over these agencies suggests that taxpayers would ultimately bail them out. So what the Realtors are really saying is that taxpayers need to take on more risk to so that the Realtors’ commissions continue to grow. Lower loan limits have not kept housing prices in California from doubling in the past four years. I don’t think the Realtors need any more help from Uncle Sam.

Reader Comments

sabio

December 1, 2005 9:04 PM

Absolutely right on!

Anonymous

December 2, 2005 8:49 AM

Amen. All they want to do is keep their party going, regardless of the risks to everyone else.

Lord

December 2, 2005 3:25 PM

Rather humorously, Fannie Mae was trying to promote purchase loans in these markets but their loan limits are so low they are confined to refis. They aren't really a factor in these markets and haven't been for a long time, so there is no loss from their abdication of them. I think the risk exposure of the GSEs has been highly overrated.

Lord

December 2, 2005 5:06 PM

Or, more accurately, the risk the GSE face are the derivatives of their own making, not the lending they do.

Doesitmatter

December 2, 2005 9:26 PM

AMEN!!!!!!!!!The greed is really showing.

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About

BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.

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