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  • Comment Detail

  • Date: 12/17/13
    First Name: Tom
    Last Name: Paustian
    Organization: N/A
    City: N/A
    State: N/A
    Attachment: N/A
    Number: 2013-N-18

  • Comment

    I have read through the proposed loan limit modifications for Fannie and Freddie and had a few observations.

    First, I think the initial plan is reasonable. Given Table 4 showing household income for those who might have been affected are predominately in the top 10% of households nationally, it seems this is a good place to start.

    Second, I question whether the appropriate benchmark for loan limits is median home price. While at first blush this may seem reasonable, it assumes efficient pricing in the housing market which we have seen fail. It may make sense to include more factors in establishing loan limits, such as median household income or others which have strong correlation to sustainable pricing.

    Third, this looks like a great opportunity to implement an automatic stabilizer. Rather than just looking year over year comparisons and adjusting loan limits, use a rolling average to determine limits. During "hot"
    markets the loan limits will be below median prices acting as a drag, and during "slow" markets the limits will be above median prices acting as a booster. This counter cyclical nature should help alleviate some of the excesses witnessed in the housing "bubble" and ensure the availability of credit during periods of distress.