Analysts advise Congress to reconsider mortgage support drop

Housing experts including Mark Zandi, chief economist at Moody’s Analytics, cautioned legislators yesterday that the size of mortgages backed by the government should not be reduced in October as a result of the fragility of the market, the Wall Street Journal reported.

If Congress doesn’t change course soon, they said, the maximum size of loans that can be guaranteed by Fannie Mae, Freddie Mac and the Federal Housing Administration will be reduced Oct. 1 to $625,500 from the current $729,750 in markets such as New York and Washington D.C.

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Many Democrats are eager for the change to be blocked but the majority of Republicans view permitting the drop as a way to reduce the U.S. mortgage market’s dependence on government.

Zandi had supported dropping the limits earlier in the year. But now, he said, “given what’s happening in the housing market and the economy, I think that’s an error.”

A large number of banks have got a jump start and are already pricing in the lower limits, the Journal said. Mortgage Bankers Association data shows that applications for mortgages between $625,500 and $729,750 fell 34 percent in August. [WSJ]

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