CORRECTION: This article has been updated to correct Jerry Howard’s title; Howard is CEO of the National Association of Home Builders.
What are the odds that the U.S. House of Representatives could follow the lead of the Senate and restore the higher conventional and Federal Housing Administration mortgage limits that expired Oct. 1 but had been in place since 2008?
Is there even a sliver of a chance that a Republican-dominated House could chuck Tea Party dogma to the wind and vote to increase the federal government’s role in the housing market? You’ve got to be kidding, right?
And for that matter, isn’t the Obama administration itself on record strongly favoring a return to lower mortgage ceilings as a necessary step toward phasing Fannie Mae and Freddie Mac out of existence and lowering FHA’s market share?
No question that conventional political wisdom says the higher limits approved in the Senate will die in the House. But I want to go out on a limb here and suggest that the odds are much better than you may assume.
Here’s why:
Take a close look at the vote last Thursday in the Senate on the mortgage limits amendment to a "minibus" spending bill. The amendment had bipartisan sponsorship (Sen. Johnny Isakson, a Georgia Republican, and Sen. Robert Menendez, Democrat from New Jersey) and it passed by a 60 to 38 margin.
Every Democrat on the floor voted for it. And a surprising eight Republicans joined them, including some moderates and pragmatic conservatives who had previously spoken out against doing anything that might keep Fannie Mae and Freddie Mac in the mortgage business.
One of those was Missouri Sen. Roy Blunt, who explained his vote later, saying "the market today is arguably worse than when these loan limits were originally increased in 2008, and allowing this deadline to arbitrarily expire will only create a more stagnant environment for Americans who are trying to get an affordable loan."
That’s a key point: The housing market right now is more anemic than anyone expected as recently as nine months ago, when a new, right-leaning Congress — along with the Obama administration — promised to rein in mortgage limits as part of a broader effort to reduce Fannie’s, Freddie’s and FHA’s exposure to loss.
Now that position appears to be morphing into this: Even if you loathe Fannie and Freddie, hold your nose, bite your tongue, but don’t do anything that might make things even worse for real estate. The housing market can’t take any more pounding.
Jerry Howard, president and CEO of the National Association of Home Builders, told me in an interview last week that "there is now a nucleus" of moderate and even conservative Republicans in the House, who, like Blunt, no longer see mortgage ceilings as purely a limit-the-federal-footprint issue, but one of "not kicking the housing industry" when it’s down and hurt, and costing jobs in every district.
There’s also a wider recognition now that the conventional and FHA loan limits are not simply about helping out California; Washington, D.C.; New York and other high-cost areas — where the maximum mortgage amount dropped from $729,750 to $625,500 Oct. 1 — but the changes affect well over 600 other markets in 42 states where the ceilings have gone lower because the formula dropped from 125 percent of median home prices to 115 percent.
Those adjustments downward are forcing buyers of houses priced slightly above the median for their area into less affordable, higher-interest-rate jumbo financing. This is not just about millionaires buying "McMansions."
Here’s another factor to consider: Through its inaction, if not words, the Obama administration has ceased standing shoulder to shoulder with conservative Republicans on lowering mortgage limits.
Looking ahead to a brutal 2012 election year focused on the economy and unemployment, the White House has essentially abandoned its policy plank of last February in which it called for a return to pre-stimulus mortgage ceilings.
Now it sees housing as a leaden weight retarding economic growth and employment, and making Obama’s re-election less likely.
"The administration was not a presence" in the Senate debate over the loan-limits extension last week, one veteran lobbyist told me.
That, in turn, not only flashed Democrats a green light to vote for the Isakson-Menendez amendment, contrary to administration policy, but also sent a signal to some Republicans looking ahead to their own tight races next year: Maybe we ought to reassess the political cost of making things worse for housing, even marginally.
Like the Senate, House members have heard from constituents stirred up by the two big lobbies pushing for a return to the higher limits: NAR and the homebuilders.
"We think they’ve been hearing a whole lot and that some of them are getting the message," NAR President Ron Phipps said in a phone discussion. "We think this is going to have a real effect" when the extension comes up for a vote.
Edward Mills, who spent a decade handling housing and banking issues as a staff member on both sides of Capitol Hill and who now works for investment banking firm FBR, rates the chances of House approval as "well above 50-50," in large part because the economic and political environments have shifted since early 2011, making it a less costly vote for many Republicans than it had been.
Mills does caution, however, that if the Senate spending bill comes before the House with a rule permitting floor votes on specific pieces of the legislation — as opposed to simply an up or down vote on the bill as a whole — the odds favoring a return to the higher limits get a bit longer.
So there it is: Don’t put all your money on getting a pro-housing vote in the House, but be aware that higher limits are by no means a lost cause politically. There’s a reasonable chance it could happen.
