[Federal Register Volume 78, Number 246 (Monday, December 23, 2013)]
[Notices]
[Pages 77450-77465]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-30477]


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FEDERAL HOUSING FINANCE AGENCY

[No. 2013-N-18]


Fannie Mae and Freddie Mac Loan Purchase Limits: Request for 
Public Input on Implementation Issues

AGENCY: Federal Housing Finance Agency.

ACTION: Notice; input accepted.

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    The Federal Housing Finance Agency (FHFA) is requesting public 
input on implementation issues associated with a contemplated reduction 
in loan purchase limits by the Federal National Mortgage Association 
(Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie 
Mac) (together, the Enterprises). Each Enterprise must set its loan 
purchase limits at or below the maximum limits, which are determined by 
statutory formulas. The maximum limits for 2014 were published by FHFA 
on November 26, 2013. A decrease in the Enterprises' loan limits below 
the statutory maximums is one means of reducing the Enterprises' 
financial market footprint pursuant to FHFA's Strategic Plan for 
Enterprise Conservatorships. Other means of reducing the Enterprises' 
footprint relate to their single-family mortgage guarantee business and 
include increasing guarantee fees and engaging in risk-sharing 
transactions.
    The basic premise of these measures is as follows: with an 
uncertain future and a desire for private capital to re-enter the 
market, the Enterprises' market presence should be reduced gradually 
over time. In addition, at the end of 2012, the amount of taxpayer 
capital available to support the Enterprises' outstanding debt and 
mortgage-backed securities obligations became fixed. Limiting their 
risk exposure is vital to maintaining the adequacy of the remaining 
capital support through the financial support agreements between the 
Enterprises and the U.S. Department of the Treasury. Finally, a 
taxpayer-backed conservatorship provides a significant subsidy to the 
mortgage market that limits private capital participation and 
underprices risk in the market.
    The contemplated action described below is a plan and not a final 
decision. The requested public input will be carefully reviewed before 
FHFA decides whether and how to proceed with the planned reductions in 
Freddie Mac's and Fannie Mae's loan purchase limits. In short, no final 
decision on loan purchase limits will be made until all input is 
reviewed. The changes contemplated in this Request for Public Input 
will not affect loans originated before October 1, 2014.
    The remainder of this Request for Public Input sets forth: FHFA's 
legal authority for directing the Enterprises to set loan purchase 
limits below the maximum loan limits; the planned approach to reduce 
the Enterprises' loan limits; and a request for public input regarding 
implementation of the plan. An appendix to this Request for Public 
Input includes analysis describing the potential impact of the plan.

Background

FHFA's Legal Authority for Setting the Enterprises' Loan Purchase 
Limits

    In their chartering acts, the Enterprises are authorized to 
purchase mortgages up to specified limits, as adjusted annually; 12 
U.S.C. 1717(b) and 12 U.S.C. 1454(a). The statutes provide that each 
Enterprise ``. . . shall establish limitations governing the maximum 
original principal obligation of conventional mortgages that are 
purchased by it. . . . Such limitations shall not exceed [the loan 
limits] . . .''

[[Page 77451]]

    The Housing and Economic Recovery Act of 2008 (HERA) establishes 
the maximum loan limits that Fannie Mae and Freddie Mac are permitted 
to set for mortgage acquisitions. HERA also requires an annual 
adjustment to these maximums to reflect changes in the national average 
home price. The maximum general limits are adjusted by a calculation of 
year-over-year changes to the existing level of home prices. In recent 
years, FHFA has not selected a specific index, but has noted that all 
reasonable indexes have declined. On November 26, 2013, FHFA announced 
maximum loan limits for 2014 and provided a description of the 
methodology used in determining these limits. The Enterprises, under 
their charters, then determine whether to set the next year's loan 
purchase limits at or below the new maximums.
    When the Enterprises are in conservatorship, FHFA, as conservator, 
may take such action as may be: ``(i) necessary to put the regulated 
entity in a sound and solvent condition; and (ii) appropriate to carry 
on the business of the regulated entity and preserve and conserve the 
assets and property of the regulated entity.'' 12 U.S.C. 4617(b)(2)(D).
    In addition, FHFA may ``perform all functions of the regulated 
entity in the name of the regulated entity which are consistent with 
the appointment as conservator or receiver''; 12 U.S.C. 
4617(b)(2)(B)(iii). FHFA's conservator obligation to preserve and 
conserve the assets includes policies to reduce the Enterprises' 
presence in the mortgage market and the risks in their business 
activities. Exercising, as conservator, a business judgment on a core 
business function of the Enterprises--setting levels of loan amounts 
below the maximums eligible for purchase by the Enterprises--is 
consistent with FHFA legal authorities. Therefore, the conservator's 
legal authority and responsibility to ``carry on the business'' of the 
Enterprises supports a decision to direct the setting of new and lower 
loan purchase limits by the Enterprises.

A Plan for Setting Loan Purchase Limits Lower Than Statutory Maximum 
Limits

    As FHFA announced on November 26, 2013, the maximum loan limits in 
2014 for one-unit properties range from $417,000 (the baseline limit) 
in most locations to $625,500 (the ceiling limit) in certain high-cost 
areas in the contiguous United States. In accordance with HERA, FHFA 
will continue to calculate and announce the future annual adjustments 
to the maximum loan limits in late November of each year.
    As described above, the maximum loan limits represent upper bounds 
to the sizes of loans that the Enterprises can purchase. Through its 
authority as conservator, FHFA may direct each Enterprise to set new 
loan purchase limits below the statutory maximum limits and below 
current limits by the same percentage in every county and county-
equivalent area \1\ in the country. FHFA has developed a plan to 
gradually reduce loan purchase limits by reducing the baseline loan 
limit from $417,000 to $400,000, a 4.077 percent decline. The planned 
ceiling limit in high-cost areas would be lowered by the same 
percentage from $625,500 to $600,000.\2\ In areas where current 
purchase limits lie between the baseline and ceiling limits, the 
planned loan purchase limit would be decreased by the same percentage 
as the baseline and ceiling purchase limits (i.e., 4.077 percent). The 
new, lower, purchase limits would only affect loans originated after 
October 1, 2014. Loans eligible for purchase before the reductions will 
remain eligible in the future, regardless of whether they exceed the 
new loan purchase limits.
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    \1\ ``County-equivalent'' areas include, for example, parishes 
in Louisiana.
    \2\ In Alaska, Hawaii, Guam, and the U.S. Virgin Islands, the 
baseline and ceiling limits would be reduced to $600,000 and 
$900,000 respectively.
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    As FHFA has noted previously, ample notice will be provided to the 
market before any change in loan purchase limits would be implemented. 
To meet that goal and provide an opportunity to receive input in 
response to this Request for Public Input, the approach described above 
will not, in any event, affect loans originated before October 1, 2014.

Request for Public Input: Implementation Questions

    FHFA requests input from the public and interested parties on the 
following questions associated with implementing the reduction of the 
Enterprises' loan purchase limits just described:
    1. FHFA has promised to provide at least six months advance notice 
of any reduction of the loan purchase limit. If FHFA makes a 
determination and announcement by, for example, March 20, would October 
1 be a reasonable effective date, or would operational issues suggest 
that an alternate or later date in 2014 would be preferable?
    2. Assuming the Enterprises' loan limit reduction takes effect for 
purchases of loans originated on or after October 1, 2014, should that 
reduction be in effect for 12 months or 15 months? In other words, for 
future announcements on any future change in the loan purchase limits, 
is a January 1 origination date preferred, or should those 
announcements be tied to the initial loan purchase limit reduction 
date?
    3. Is it preferable for the Enterprises to announce a multi-year 
schedule of proposed decreases? If so, should it be a specific percent 
per year, perhaps five percent, or a specific dollar reduction, perhaps 
$20,000 each year?
    4. Currently, there are several geographic areas with limits 
between the current baseline loan limit of $417,000 and the ceiling 
high-cost area limit of $625,500. The maximum limits in these areas are 
tied to the median house price in those areas. Should FHFA tie future 
reductions in loan purchase limits in those areas to changes in median 
house prices in any way, or should reductions in those areas simply be 
proportional to reductions in the baseline limit?
    5. Currently, all loan limits are rounded to the nearest $50. Is 
this appropriate, or should the loan purchase limits be set at even 
multiples of either $1,000 or some other dollar amount for greater 
simplicity?
    FHFA will accept public input through its Office of Policy Analysis 
and Research (OPAR), no later than March 20, 2014. Communications may 
be addressed to Federal Housing Finance Agency, (OPAR), Constitution 
Center, 400 Seventh Street SW., Ninth Floor, Washington, DC 20024, or 
emailed to: [email protected]. Communications to FHFA may 
be made public and posted without change on the FHFA Web site at http://www.fhfa.gov, and would include any personal information provided, 
such as name, address (mailing and email), and telephone numbers.

    Dated: December 17, 2013.
Edward J. DeMarco,
Acting Director, Federal Housing Finance Agency.

Appendix: Impact Analysis of Reductions in the Enterprises' Loan 
Purchase Limits

    This Appendix provides historical background on loan purchase 
limits, as well as detail on how they have been calculated. Broadly 
speaking, this background reveals that the current loan purchase 
limits (which are set at the maximum loan limits) are historically 
high and that certain implementation decisions have been made that, 
in some locations, made those limits higher than they otherwise 
would have been.
    Further, this Appendix provides statistics showing the potential 
market impact of reducing loan purchase limits by the magnitude 
described in the Request for Public Input. The focus of the analysis 
is on evaluating the number and types of borrowers that might have 
been affected had lower loan purchase limits been in place in

[[Page 77452]]

2012. The evaluation of 2012 data provides a reasonable indication 
of likely effects of loan purchase limit reductions in 2014. It is 
not possible to know with certainty how a different loan purchase 
limit regime will affect the market environment and specific 
borrowers, but the analysis suggests a small decline in loan 
purchase limits will have a modest impact.

Background: Baseline Loan Purchase Limit

    Figure 1 plots the time trend in the historical loan purchase 
limit for one-unit properties in the contiguous United States since 
1992.\1\ The graph also shows changes in the ceiling loan limit that 
has capped limits in certain high-cost areas since 2008. Between 
2008 and late 2011, that ceiling was $729,750 for the contiguous 
U.S. In October 2011, the ceiling was decreased to $625,500.
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    \1\ Unless otherwise stated, the loan limits discussed hereafter 
will be for one-unit properties in the contiguous United States. 
Loan limits in certain statutorily excepted areas--Alaska, Hawaii, 
Guam, and the U.S. Virgin Islands--are higher, but have trended in 
the same way as limits for the rest of the country.
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    Figure 1 reveals that the baseline loan limit of $417,000 is at 
its historical peak. To provide context for the relative size of the 
loan limit increases shown in Figure 1, Figure 2 plots the growth in 
baseline loan limits against the growth in several other economic 
metrics, including median household incomes, consumer prices, and 
median U.S. home values. The respective values for each of these 
variables are normalized in the graph so that the value in 1992 for 
each variable is set equal to 100.
    The graph clearly shows the elevated nature of current limits. 
At $417,000, the 2013 baseline loan limit, for instance, was 206 
percent of its level in 1992. The ``ceiling'' loan limit--the 
highest loan purchase limit in high-cost areas--was 309 percent of 
the 1992 limit. By contrast, 2013 data for median home values, 
inflation, and median household income indicate that those metrics 
this year have been between 163 percent and 180 percent of their 
1992 levels.

Background: Calculation of Loan Purchase Limits in High-Cost Areas

    While Figures 1 and 2 provide some indication of the elevated 
nature of loan limits, they only address the baseline and ceiling 
loan limits. They do not evaluate the actual calculations that have 
determined maximum loan limits in high-cost areas. It can be shown 
that specific implementation decisions have made maximum loan limits 
higher than they otherwise would be in many high-cost areas. In 
conservatorship, the Enterprises have set their loan purchase limits 
equal to the statutory maximum loan limits.
    Since 2008, maximum loan limits in high-cost areas have been 
statutorily set as a function of median local home values. Under 
HERA, the maximum loan limit in high-cost areas is 115 percent of 
the local median home value. The resulting limit is bounded between 
$417,000 and $625,500.
    Because maximum loan limits are determined by median home 
values, the precise method used for estimating median home values 
can have a significant impact on the actual maximum loan limit. 
Since 2008, for determining maximum loan limits, FHFA has used 
median home values produced by the U.S. Department of Housing and 
Urban Development (HUD).\2\ FHFA has used the HUD-generated median 
home values because they have full geographic coverage. That is, 
median home value statistics are included for all counties across 
the country--something no other single source provides. Also, the 
introduction of a set of median home values different from those 
produced by HUD might generate confusion among market 
participants.\3\
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    \2\ HUD computes median home values for the purpose of 
determining FHA loan limits.
    \3\ For example, a divergence in the median values used by HUD 
and FHFA would have meant that, for some years, FHA and Enterprise 
loan limits would have differed despite the fact that the respective 
loan-limit formulas were generally the same.
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    Although HUD's methodology for calculating median values is 
positive in many respects, for many counties, one of the steps in 
the process makes Enterprise maximum loan limits, which are based on 
those median values, quite high relative to what the specific 
county-level data would suggest.
    By law, when determining median home values for counties in 
Metropolitan and Micropolitan Statistical Areas, HUD's calculation 
must implement a ``high-cost county rule'' (HCCR). Under the HCCR, 
median home values for counties in Metropolitan and Micropolitan 
areas must reflect the median values in the highest-cost component 
county. To illustrate--for a Metropolitan Statistical Area (MSA) 
comprised of 10 counties, HUD begins by separately estimating median 
home values in each of the 10 counties. Then, after finding the 
highest of those 10 values, HUD assigns that highest value to all 10 
counties in the MSA.
    The HCCR tends to lead to an overstatement of local median home 
values. Washington, DC provides a good example. The two dozen county 
and county-equivalent areas that comprise the Washington, DC 
metropolitan area are diverse in terms of their median home values. 
Over the last several years, median home values in the most 
expensive counties have been around $600,000, whereas homes values 
in lower-priced areas were in the $200,000-$300,000 range. If 
pooled, transactions from the metropolitan area's counties would 
have generated a DC-wide median home value of roughly $300,000-
$400,000. (The precise median home value would have varied over time 
and would depend on certain technical decisions). Had this median 
value been used for determination of the maximum loan limit, the 
area's loan limit likely would have been no higher than $460,000. 
Because the HCCR was applied, however, the median home value used 
for the entire metropolitan area was approximately $600,000, which 
is the median home price in the most expensive county. This means 
that the maximum Washington, DC loan limit was determined to be 
$625,500 for the last few years.
    Seattle, which is comprised of three counties, including King 
County (the most expensive) is another example of where actual 
effects have been present. According to the National Association of 
Realtors, which does not apply a HCCR in computing median home 
values, the Seattle-area median was around $300,000 in 2012 and just 
under that in preceding years. With these median home values, the 
associated HERA maximum loan limit would have been $417,000. By 
contrast, because the HCCR only made use of transactions information 
for King County, where median home values were $400,000 and above, 
the loan limit for the entire metropolitan area was much higher at 
$506,000.
    However, the overstatement in many places has had no impact on 
loan limits. In those metropolitan areas, the overstated median home 
value still was significantly below $362,600, which is the threshold 
value below which the maximum loan limit is merely set at the 
baseline level of $417,000.

Impact Analysis: Estimates

    Given the elevated nature of existing loan purchase limits, 
analyzing the possible impact of a loan purchase limit decline is 
important. This impact analysis evaluates an across-the board 
decline--i.e., one that reduces loan purchase limits by the same 
4.077 percentage in every county and county-equivalent area \4\ in 
the country. Per the planned declines, the baseline loan limit is 
reduced from $417,000 to $400,000, while the ceiling limit is 
reduced from $625,500 to $600,000.\5\ In areas where loan limits are 
bounded by the baseline and ceiling, the loan limit has been reduced 
by the same percentage.\6\
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    \4\ ``County-equivalent'' areas include, for example, parishes 
in Louisiana.
    \5\ In Alaska, Hawaii, Guam, and the U.S. Virgin Islands, the 
baseline and ceiling limits are reduced to $600,000 and $900,000 
respectively.
    \6\ ($400,000 - $417,000)/$417,000 = -.04077.
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    It is impossible to know with certainty the impact these 
reductions will have in 2014, but one analysis entails counting the 
number of acquired Enterprise mortgages with loan amounts above the 
lower loan purchase limits. Using a database of Enterprise loan 
acquisitions from 2012, Table 1 shows loan counts by state for the 
number of Enterprise-guaranteed mortgages with original loan amounts 
above the planned lower limits. Table 2 shows counts for 25 large 
Metropolitan Statistical Areas.
    Table 1 reveals that, in 2012, roughly 170,000 Enterprise 
mortgages had original loan balances above the lower loan limits 
described in the Request for Public Input. This represented roughly 
2.9 percent of total Enterprise mortgage acquisitions during 2012. 
About 50,000 purchase-money mortgages had balances above the lower 
limits.
    Across states and MSAs, the share of mortgages with original 
balances near the applicable current loan purchase limit varied 
significantly. In Colorado--a state with a relatively large share of 
potentially impacted loans--roughly 6 percent of Enterprise 
mortgages (about 9,300 mortgages) had original balances above the 
reduced loan purchase limit. By contrast, only about one percent of 
mortgages in West Virginia and

[[Page 77453]]

Alaska had balances in the affected range. Because loan amounts tend 
to be higher in urban areas than they are in states, the data in 
Table 2 reflect slightly larger shares of affected loans for MSAs. 
The shares of potentially impacted loans still remain relatively 
modest.
    As indicated earlier, the mortgage counts reflected in the 
tables likely represent a substantial overstatement of the number of 
borrowers that might have been unable to obtain an Enterprise-
eligible loan, or could be unable to do so in 2014. If loan purchase 
limits had been lower in 2012, some borrowers who took out loans in 
excess of the lower limit may have been able to modify their plans 
and borrow less (i.e., might still have taken out an Enterprise-
eligible loan). In other words, whether by either increasing down 
payment or by taking out a larger second mortgage, some borrowers 
still would have had the ability to take out a loan that met the 
lower purchase limit.
    A different and more sophisticated analysis would investigate, 
statistically, the relationship between the loan limit and the 
distribution of loan amounts. Not surprisingly, a large number of 
acquired Enterprise loans in 2012 had balances of exactly $417,000. 
Developing a statistical model that evaluates the size of the spike 
in the loan count that occurs at exactly the current loan limit 
would be valuable for estimating the size of the spike that would 
occur under a lower loan purchase limit. Unlike the prior impact 
analysis--which assumes that a borrower with a $417,000 mortgage 
would not have obtained an Enterprise-eligible loan if the limit 
were $416,999 or lower (i.e., the loan would have been 
``eliminated'')--a statistical model can implicitly account for 
borrower adjustments that would take place.
    FHFA has been working on a model that might be used for such a 
purpose. While crude, a preliminary analysis suggests impact 
estimates that are roughly half of those produced in the simple 
approach.

Impact Analysis: Loan-Level Inspection

    Although a statistical model would represent an improvement over 
simply counting mortgages in the affected range, an alternative 
analysis--one that makes use of loan-level information available to 
FHFA--is also available. Loan-level data can be used to identify 
options that would have been available to borrowers had loan 
purchase limits been lower. In doing so, one can remove from the set 
of eliminated loans mortgages for which borrowers would have had 
effective ways of responding to lower loan purchase limits. For 
example, data showing borrower cash reserves can be used to identify 
borrowers who, in response to a reduced loan purchase limit, would 
have had the demonstrated capacity to take out a smaller mortgage. 
Also, information about FICO scores and the loan-to-value ratio at 
origination can be used to identify borrowers who likely could have 
qualified for jumbo mortgages. Because interest rates for jumbo 
mortgages were only modestly higher than rates for Enterprise 
mortgages,\7\ the ``impact'' of a borrower receiving a jumbo 
mortgage as opposed to an Enterprise mortgage would have been 
minimal. In this analysis, such borrowers are therefore excluded 
from the counts of impacted borrowers.
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    \7\ Indeed, in some recent periods, the spread in mortgage rates 
has been zero or negative (i.e., jumbo rates have actually been 
lower than rates for Enterprise eligible loans).
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    Using loan-level data, Table 3 shows the results of this more 
comprehensive approach for assessing the expected impact. The first 
row in the table repeats the impact number that was produced in the 
crude analysis--169,939. The second row estimates the number of 
mortgages that would have had balances above the new loan purchase 
limit and had combined loan-to-value (CLTV) ratios and FICO levels 
that may have made it difficult for the borrower to obtain jumbo 
financing.\8\ Loans with FICO scores of either less than 720 or CLTV 
ratios above 80 percent were assumed to present potential 
difficulties.\9\ The third row uses available information on 
borrower cash-on-hand to eliminate from the remaining sample 
borrowers who may have had the ability to take out a smaller 
mortgage.\10\
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    \8\ The CLTV is the sum of all original loan amounts--including 
balances for first and second mortgages originated--divided by the 
value of the property.
    \9\ Second liens information is readily available for Fannie Mae 
loans; however, second liens data for Freddie Mac loans are 
incomplete. Accordingly, a factor derived from Fannie Mae data was 
used to produce an estimate for Freddie Mac. Specifically, Fannie 
Mae data indicated that, among mortgages with good FICO scores and 
with first liens that represented either 80 percent or less of the 
property value, only about 5 percent had second liens that may have 
hindered access to jumbo mortgages (i.e., the CLTV would have 
exceeded 80 percent). The number of Freddie Mac loans with favorable 
FICO and CLTV values was thus assumed to be 95 percent of the number 
of Freddie Mac having a FICO of 720 and with a first-lien LTV ratio 
of 80 percent or below.
    \10\ Because cash reserves data are unavailable for Freddie Mac, 
to arrive at its final impact estimate (that omits loans with 
sufficient cash reserves)--an imputation was used. Consistent with 
available data for Fannie Mae, it was assumed that roughly 24 
percent of Freddie Mac's jumbo-ineligible loans had sufficient cash 
reserves.
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    Ultimately, after the various filters are applied, row 3 of 
Table 3 shows roughly 32,000 remaining mortgages. This means that, 
after accounting for loan characteristics and recognizing that jumbo 
financing would have been a reasonable alternative for many 
borrowers, the final impact of a loan purchase limit reduction might 
have only been about 32,000 loans. This figure is roughly 20 percent 
of the original crude impact estimate. Assuming that approximately 
8.4 million mortgages were originated in 2012, the number reflects 
less than 0.4 percent of all 2012 loan originations.
    It should be noted that the final impact analysis does not 
account for the availability of mortgages endorsed by the Federal 
Housing Administration (FHA). Some of the roughly 32,000 impacted 
loans may have been able to obtain FHA financing. While borrower 
costs would be higher (vis-[agrave]-vis Fannie Mae, Freddie Mac, and 
jumbo loans), such borrowers would have obtained mortgage rates that 
still were attractive from a historical perspective.

Impact Analysis: Characteristics of Impacted Loans

    Table 4 attempts to answer: ``What types of borrowers and what 
types of loans would be affected by the loan purchase limit 
reductions?'' The table shows summary statistics for loans that the 
more comprehensive impact analysis suggested might be affected. The 
first column of the table shows summary data for roughly 32,000 
loans identified in the comprehensive impact analysis.\11\ The 
second column shows statistics for only the purchase-money mortgages 
contained in that sample. Approximately 40 percent of the affected 
loans were purchase-money mortgages. The final column shows 
statistics for only about 13,000 loans.
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    \11\ Although Table 3 reported a total of about 32,000 
potentially impacted loans, loan characteristics for some impacted 
loans are not observable. The absence of certain loan-level data for 
Freddie Mac meant that some of the overall impact was based on 
imputations; i.e., the specific impacted loans were not 
identifiable. For the purpose of analyzing impacted loans in Table 4 
then, a sample was assembled that contained the loans in the final 
Fannie Mae affected sample (which were identifiable) plus a set of 
Freddie Mac loans that were reasonably representative. The Freddie 
Mac loans included were cases where the borrower had either a FICO 
score of below 720 OR a first-lien ratio of more than 80 percent. 
This Freddie Mac sample captures some borrowers who might not have 
been ultimately impacted (e.g., borrowers who had sufficient 
reserves to take out an Enterprise-eligible loan) and excludes some 
borrowers who might have been impacted (e.g., borrowers who had 
second liens that drove up their CLTV values to above 80 percent). 
The effects of this imperfect overlap on the representativeness of 
the overall sample (i.e., the pooled sample of Fannie Mae and 
Freddie Mac loans) should be modest, however.
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    The table shows that potentially affected borrowers had 
relatively high incomes. The median 2012 household income for 
impacted borrowers who took out purchase-money mortgages was about 
$176,000--more than three times the national median. Twenty-five 
percent of such borrowers had household incomes of more than 
$229,000.
    In general, the potentially impacted borrowers were attempting 
to either buy or refinance relatively expensive homes. Across all 
mortgage types, the median home value was $550,000, while the median 
sales price for purchased homes was around $520,000. Twenty-five 
percent of borrowers were attempting to buy homes valued at either 
$649,000 or more.
    Although Table 4 shows many of the affected loans were in 
California, Illinois, Texas, Florida, and Colorado, these states 
collectively did not comprise a majority of the impacted loans. 
Combined, these states accounted for only about 40 percent of 
affected loans, suggesting that the effects of a loan purchase limit 
decline might have been geographically dispersed.

Impact Analysis: A Note About Home Prices

    In light of the limited number of affected purchase-money 
mortgages, it would be reasonable to assume the market effects of a 
small loan purchase limit decline would be modest. Given the 
millions of single-family property transactions that occur each year 
in

[[Page 77454]]

this country, the influence that around 13,000 purchase-money 
mortgages might have on home prices would seem to be relatively 
small.
    Though not conclusive, historical evidence supports the 
expectation that the price effects will be modest. Loan limits 
decreased in certain high-cost areas in late 2011 with little 
discernible impact on observable prices. While no comprehensive 
analysis has been conducted into the effects of that reduction, 
post-reduction price increases--in many cases large increases--were 
evident in many of the most affected areas. For instance, 
Washington, DC, Los Angeles, San Francisco, and San Diego--cities 
that saw loan limit reductions of more than $100,000--experienced 
price increases in the following four quarters between 5.2 and 10.0 
percent. These appreciation rates compared positively to the 
national appreciation over that period of 4.0 percent.
    The late-2011 loan purchase limit reduction was geographically 
smaller in scope than the one contemplated for 2014.\12\ In many 
areas, the 2011 loan limit declines were much larger than the 
planned 2014 loan purchase limit declines. Moreover, the 2011 
reduction occurred in a fragile period for the housing recovery and 
appeared to have a limited impact during a fragile economic recovery 
period. This suggests that the impact of the contemplated 2014 loan 
limit reduction may be quite limited.
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    \12\ Prior to the implementation of the 2011 reduction, a 
Mortgage Market Note was published that found that roughly 50,000 
Enterprise loans with potentially affected loan amounts had been 
originated in the prior year. The 50,000 estimate did not include 
condominiums and properties in Planned Unit Developments--properties 
included in the mortgage counts supplied in this analysis. Even 
adjusting for those exclusions, however, the scope of the 2011 loan 
limit reduction was substantively smaller.
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[FR Doc. 2013-30477 Filed 12-20-13; 8:45 am]
BILLING CODE 8070-01-C