FHFA proposes lower loan limits

|By:, SA News Editor

In good news for securitizers of private-label MBS like Redwood Trust (RWT +1.1%) and PennyMac Financial Services (PFSI +1.4%), the FHFA sets in motion a 4% reduction in conforming loan limits to a new ceiling of about $400K for most of the U.S., while higher-cost areas would see a new limit of $600K.

The goal is to cut the presence of Fannie (FNMA -0.7%) and Freddie (FMCC -2.3%) in the mortgage market, a gap private firms would love to fill. Critics will say the cuts could harm the housing recovery. The period for public comment on the proposal ends on March 20. If it moves forward, changes could take place by October 1.