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Loan Limits a Constant Volley

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Barely a month after loan limits at Fannie Mae, Freddie Mac and the Federal Housing Administration were lowered to a maximum of $625,000, there is a move to raise them yet again.

The Senate passed an amendment a few weeks ago that increases the limits back to $729,750, and although it will face opposition in the House, it is attached to a government spending bill that needs to be law by November 18th.

That's how these things tend to get pushed through.

Home builders and Realtors alike have been pushing for the reinstatement of these limits, so potential buyers in higher priced markets can get easier, cheaper access to credit. The median price of a newly built home is far higher than that of an existing home. Realtors have blamed a drop in home sales in California recently, where prices are higher than the rest of the nation, on lower the conforming loan limit.

But even if the loan limits are raised yet again, they could go back down yet again as well.

How? Deficit reduction. In the litany of possible cuts that involve housing, lowering and freezing the conforming loan limit at $417,000 is on the table, proposed by the Congressional Budget Office, which estimated that this would raise $4 billion over ten years.

It's possible, though unlikely, at least according to Jaret Seiberg at MF Global: "It would disproportionately hurt those that live on the east and west coasts even though this should secure the support of Republicans who want to eventually eliminate Fannie and Freddie."

And there's your conundrum. Sure, Republicans are rallying to slaughter Fannie and Freddie, but they're really the only game in town for the mortgage market. Every time I hear a candidate in one of these debates answer the, "How would you fix housing?" question with a tirade against the two mortgage giants, I wonder if they have any idea how the housing market works today.
Until there is a private market for mortgage securities, an option to fund the market other than Fannie, Freddie, then killing them, or even messing with their loan limits, cannot be the means to an end of the housing crisis.

Questions? Comments? RealtyCheck@cnbc.comAnd follow me on Twitter @Diana_Olick