Behind closed doors on Capitol Hill, a massive lobbying effort is underway. On a seemingly small issue with scant public attention, powerful special interests are looking to cash in their chits and strike a deal – a deal that will come at the expense of taxpayers.
This week, House and Senate conferees will negotiate a minibus appropriations measure. Many Americans will focus on the inflated levels in spending and wonder how any self-described conservative could vote for a spending increase. The media will focus on the threat of a government shutdown and hope it will spike their rating. However, those powerful interests will focus like a laser on securing an increase in the conforming loan limit.
Don’t stop reading. Conforming loan limits sound boring, but that is by design because boring doesn’t invite scrutiny. In reality, this stealthy, special interest lobbying effort has major ramifications for America’s housing market and it could be the most significant legislative action this Congress.
An increase in the conforming loan limit would increase taxpayers’ exposure to additional bailouts by allowing the Fannie Mae and Freddie Mac (the GSEs) to purchase and the Federal Housing Administration (FHA) to insure home loans up to $729,750. As of October 1, the stimulus-era increase ended and the limit dropped to $625,000. Before the financial crisis, it was $417,000.
In practical terms, it would mean taxpayers would now be on the hook for guaranteeing home loans for as much as $729,750. If you’re looking to buy a home in that price range, you’re probably a fan of this idea because it would amount to an “upfront subsidy” of more than $123,000 since the down payment is not risk-based, according to the folks at Economics21. However, as we saw last week when taxpayers shelled out another $6 billion to keep Freddie Mac solvent, there is a serious risk to the taxpayer.
That is why Republican presidential candidates have mentioned Fannie and Freddie repeatedly. Even a former Freddie lobbyist is lobbying against the increase. There is widespread recognition the current housing system is broken, and it cannot be fixed without serious reforms to Fannie and Freddie. To their credit, House Republicans laid out a strong position in their Pledge to America last fall: