BILL ANALYSIS Ó
-----------------------------------------------------------------
|SENATE RULES COMMITTEE | SJR 19|
|Office of Senate Floor Analyses | |
|1020 N Street, Suite 524 | |
|(916) 651-1520 Fax: (916) | |
|327-4478 | |
-----------------------------------------------------------------
UNFINISHED BUSINESS
Bill No: SJR 19
Author: Correa (D), et al.
Amended: 6/25/14
Vote: 21
SENATE BANKING & FINANCIAL INST. COMM. : 7-0, 4/9/14
AYES: Evans, Block, Correa, Hill, Roth, Torres, Vidak
NO VOTE RECORDED: Berryhill, Hueso
SENATE FLOOR : 37-0, 4/24/14 (Consent)
AYES: Anderson, Beall, Berryhill, Block, Cannella, Corbett,
Correa, De León, DeSaulnier, Evans, Fuller, Gaines, Galgiani,
Hancock, Hernandez, Hill, Hueso, Huff, Jackson, Knight, Lara,
Leno, Lieu, Liu, Mitchell, Monning, Morrell, Nielsen, Padilla,
Pavley, Roth, Steinberg, Torres, Vidak, Walters, Wolk, Wyland
NO VOTE RECORDED: Calderon, Wright, Yee
ASSEMBLY FLOOR : 78-0, 8/4/14 - See last page for vote
SUBJECT : High-cost loan limits
SOURCE : California Association of Realtors
DIGEST : This resolution expresses the Legislatures opposition
to a reduction in the high-cost conforming loan limits used by
the Federal National Mortgage Association (Fannie Mae) and the
Federal Home Loan Mortgage Corporation (Freddie Mac) and urges
the Federal Housing Finance Agency (FHFA) to resist implementing
any such reductions.
CONTINUED
SJR 19
Page
2
Assembly Amendments make technical and clarifying changes and
add a statement from the Director of FHFA relative to its
authority as a conservator.
ANALYSIS : Existing federal law establishes FHFA and places
responsibility with FHFA for overseeing Fannie Mae and Freddie
Mac.
This resolution:
1. Makes a series of findings related to the history of the
high-cost loan limits used by the government-sponsored
enterprises (GSEs; colloquially known as Fannie Mae and
Freddie Mac), the conservatorship of Fannie Mae and Freddie
Mac in 2008 by the FHFA, a December 2013 proposal by FHFA to
reduce the national and high-cost loan conforming limits used
by Fannie Mae and Freddie Mac, and the adverse consequences
that could result to California's housing market if the
FHFA's proposal is allowed to move forward.
2. Expresses the Legislature's opposition to any reduction in
the current national and high-cost conforming loan limits for
Fannie Mae and Freddie Mac and urges the FHFA to continue to
resist implementation of any reductions to these limits.
3. Urges the President of the United States and the United
States Congress to join California in opposing any reduction
in the national and high-cost conforming loan limits.
Background
Fannie Mae and Freddie Mac, collectively known as the GSEs,
purchase and guarantee residential mortgage loans, providing the
funding necessary to sustain the U.S. housing market. According
to the most recent available data, 77% of all U.S. mortgages are
owned or guaranteed by the GSEs. From January 1, 2009 through
December 31, 2013, Fannie Mae (the larger of the two
enterprises) provided approximately $4.1 trillion in liquidity,
which enabled 3.7 million home purchases and 12.3 million
mortgage refinancings. During the same time period, Freddie Mac
provided approximately $2.2 trillion in liquidity, which enabled
2.0 million home purchases and 7.7 million refinancings.
Fannie Mae and Freddie Mac have a limit (the "conforming loan
CONTINUED
SJR 19
Page
3
limit") on the maximum size of loans they are allowed to
purchase and/or guarantee. Generally speaking, borrowers who
obtain conforming loans pay a lower interest rate than those who
obtain "jumbo" loans (i.e., loans whose principal amount upon
origination exceeds the conforming loan limit).
For several decades, the GSEs had a single conforming loan limit
for the contiguous 48 states. The national conforming loan
limit for mortgages that finance single-family one-unit
properties was $33,000 in the early 1970s. Periodic inflation
adjustments increased this limit to $417,000 by 2006, a level at
which it remained until 2008. These limits were 50% higher in
four statutorily-designated high cost areas, including Alaska,
Hawaii, Guam, and the U.S. Virgin Islands.
Federal legislation enacted in 2008 established two sets of
conforming loan limits: general limits and high-cost limits.
High-cost limits were intended to reflect the reality that
housing costs vary across the U.S. and the concern that buyers
in high-cost areas were disadvantaged by a conforming loan limit
system that failed to reflect the significant variance in home
prices across the country. Because jumbo loans traditionally
carry higher interest rates than conforming loans, home buyers
in high-cost areas were being doubly penalized by their choices
of residence - once by the high cost of the homes in their areas
and a second time by the higher interest rates they were
required to pay on the jumbo loans they required to purchase
those homes.
The general conforming loan limit has remained at $417,000 since
2006. Federal legislation, including the Housing and Economic
Recovery Act of 2008 and the American Recovery and Reinvestment
Act of 2009, temporarily established high-cost loan limits at
levels as high as $729,750. Those limits have since fallen to
$625,500 pursuant to the provisions of that federal legislation.
Individuals wishing to know whether their area is one in which
the general conforming loan limit or the high-cost loan limit
applies can look up this information on the FHFA Web site.
This resolution addresses the question of whether those limits
should be reduced further, or retained at their current levels.
Conservation of Fannie Mae and Freddie Mac . In early September
2008, at the height of the U.S. mortgage market turmoil and
CONTINUED
SJR 19
Page
4
shortly before the failure of Lehman Brothers and several other
large financial institutions, both Fannie Mae and Freddie Mac
were placed into conservatorship. Their conservation by FHFA
was intended to shore up their finances and prevent a complete
collapse of the U.S. housing market. By late 2008, most sources
of private mortgage financing had fled the U.S. mortgage market
in panic about high foreclosure rates. The GSEs' conservation
guaranteed their continued existence and was one of many
attempts taken by the federal government to calm the mortgage
markets and help avoid an economic depression. In total, the
federal government provided the GSEs with over $180 billion in
taxpayer support following their conservation.
As foreclosures have declined and the national housing market
has recovered, considerable discussion has focused on the future
of the GSEs. Myriad plans have been advanced by different
entities within the federal government, and a significant number
of bills have been introduced in Congress, all with the aim of
ending the conservatorship and replacing it with a more stable,
long-term mortgage market framework. Most people believe that
the federal government must reduce its level of support for the
U.S. mortgage market, before private mortgage financing will
return. However, to date, there has been no agreement on
whether the GSEs should be retained, modified, or eliminated,
how best to reduce their role in U.S. mortgage financing, nor
even on the time frame in which those changes should occur.
Prior to the financial crisis, private mortgage financing
dwarfed public mortgage financing. As recently as 2006, Fannie
and Freddie supplied 43% of the capital within the secondary
mortgage market. Today, the federal government backs nine out
of every ten mortgages, when the mortgage portfolio of the GSEs
and the Federal Housing Administration are combined. Many
believe that level is unsustainable in the long-term.
The Obama Administration's Choice of GSE Resolution Plans . In
February 2012, then-acting Director of the FHFA Edward DeMarco
submitted a strategic plan to Congress setting forth objectives
and steps that FHFA had taken or planned to take to meet FHFA's
obligations as conservator. In that strategic plan, FHFA
identified three strategic goals, including (1) building a new
infrastructure for the secondary mortgage market, (2) gradually
contracting the GSE's dominant presence in the marketplace while
simplifying and shrinking their operations, and (3) maintaining
CONTINUED
SJR 19
Page
5
foreclosure prevention activities and credit availability for
new and refinanced mortgages.
In December 2013, FHFA proposed to begin reducing GSE loan
limits, in an effort to begin the slow process of shrinking the
sizes of Fannie Mae's and Freddie Mac's portfolios, in
anticipation of their eventual elimination. In May 2014, the
Director of FHFA, Melvin L. Watt, announced that FHFA "will not
use its authority as conservator to reduce the loan limits."
FISCAL EFFECT : Fiscal Com.: No
SUPPORT : (Verified 8/5/14)
California Association of Realtors (source)
California Credit Union League
California Independent Bankers
California Mortgage Bankers Association
ARGUMENTS IN SUPPORT : The resolution's sponsor, the
California Association of Realtors (CAR), believes that "any
reductions to federal mortgage loan limit caps will limit
California homebuyers from access to safe and affordable
mortgages through Fannie Mae and Freddie Mac. Such a
limitation, in turn, is certain to ripple through the entire
housing market and have a negative impact on the larger
economy." CAR observes that California has 15 metropolitan
statistical areas (MSAs) that benefit from high-cost loan
limits, including five MSAs (encompassing 11 counties) which
benefit from the highest tier of high-cost loan limits. Those
11 counties include Alameda, Contra Costa, Los Angeles, Marin,
Orange, San Benito, San Francisco, San Mateo, Santa Barbara,
Santa Clara, and Santa Cruz.
The California Independent Bankers writes, "Fannie Mae and
Freddie Mac high-cost loans are important to California's real
estate industry. As local lenders, community banks play a
significant role in the housing market. If the cap on Fannie
Mae and Freddie Mac high-cost loans is reduced under FHFA's
proposal, tens of thousands of loans in California could be
negatively impacted, including the mortgage loans of community
bank customers."
The California Credit Union League believes that reducing the
CONTINUED
SJR 19
Page
6
loan limits could potentially cut off access to credit for
California consumers or drive them to higher priced lenders.
The California Mortgage Bankers Association is concerned about
the impact of a reduction in the conforming loan limits. The
housing markets remain fragile, and proposed changes risk
further constructing access to credit and reversing progress
made in the housing recovery. Many potential homeowners remain
on the sidelines, unable to purchase a home or refinance their
mortgages due to rising rates, tight housing inventory, and
restrictive credit standards. In key housing markets, the
proposed loan limit reductions could exacerbate existing
problems.
ASSEMBLY FLOOR : 78-0, 8/4/14
AYES: Achadjian, Alejo, Allen, Ammiano, Bigelow, Bloom,
Bocanegra, Bonilla, Bonta, Bradford, Brown, Buchanan, Ian
Calderon, Campos, Chau, Chávez, Chesbro, Conway, Cooley,
Dababneh, Dahle, Daly, Dickinson, Donnelly, Eggman, Fong, Fox,
Frazier, Beth Gaines, Garcia, Gatto, Gomez, Gonzalez, Gordon,
Gray, Grove, Hagman, Hall, Harkey, Roger Hernández, Holden,
Jones, Jones-Sawyer, Levine, Linder, Logue, Lowenthal,
Maienschein, Mansoor, Medina, Melendez, Mullin, Muratsuchi,
Nazarian, Nestande, Olsen, Pan, Patterson, Perea, John A.
Pérez, V. Manuel Pérez, Quirk, Quirk-Silva, Rendon,
Ridley-Thomas, Rodriguez, Salas, Skinner, Stone, Ting, Wagner,
Waldron, Weber, Wieckowski, Wilk, Williams, Yamada, Atkins
NO VOTE RECORDED: Gorell, Vacancy
MW:d 8/5/14 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
**** END ****
CONTINUED