RMBS: Conforming Mortgage Limits To Drop On Oct. 1st

The projected reductions in agency mortgage limits are likely to lead to further weakness in home prices, but would only be a first step in reducing the role of government in housing finance and reviving private-label RMBS, in our view. If there is no Congressional action, the maximum limit will drop from $729,750 to $625,500 in high cost areas on October 1, 2011. Lobbying efforts to postpone the change have not gained traction with Republicans, according to the Wall Street Journal. There are about 110,000 nonconforming mortgages with balances between $625,000 and $729,000, about 2% of the total, according to CoreLogic. The total balance of these mortgages is around $100bn, by our calculation. The new limits may have a disproportionate effect on affluent areas in districts with mixed home values.

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