It’s no secret that lending guidelines have become a bit more, shall we say, restrictive? Anyone that works for a bank or a real estate investor that has recently applied to finance an acquisition can tell you first hand that lenders have turned moreloan limits to fall conservative when evaluating a loan application.

One can wonder why lenders would make it more difficult to obtain financing when the housing industry is one of the prime movers of the economy but risk mitigation today is a lender’s job one.

Doing so reduces the exposure lenders have and ultimately taxpayers have, since Fannie and Freddie were forced into conservatorship in 2008. In fact, lenders will tell you straight out that erring on the side of caution are where loan considerations will ultimately land. And that’s a good thing, not a bad thing considering where we were in the late 2000’s.

But a recent proposal by the Federal Housing Finance Agency, or FHFA, is causing quite a bit of a stir among real estate investors as well as the real estate industry in general. Reducing the loan limits for Fannie and Freddie loans.

When banks underwrite loans for investors seeking long term financing, they use guidelines established by Fannie Mae and Freddie Mac. Doing so allows the loan to be sold in the secondary market, replenishing credit lines to make still more home loans. One of these requirements is the maximum loan amount and today that limit is $417,000 and $625,000 in certain areas deemed “high cost.”

These limits were set more than a decade ago before the housing crisis and prior to that, loan limits gradually increased as housing values did the same. Yet the loan limits have stayed the same, even after property values plummeted over the past few years.

How much lower might they go and when? It seems a $40,000 reduction is the rumor that gets the most attention but there’s really no way to know until after the first of the year. Loans above the limit fall into the “jumbo” category and subject to greater scrutiny and more down payments.

We get FHFA’s goal here, to sustain and protect the recovering housing market. Yet sometimes when the government is here to help us, well, just the opposite takes place.