Just when we thought the conforming limit would finally decline, the Senate disappoints us

Anyone who hoped that we would begin to see how the mortgage market might function with a tiny bit less government support should be pretty disappointed today. The Senate approved a measure that would reinstate the high-cost mortgage limits that expired on September 30th. The move seeks to ensure that relatively affluent Americans will get slightly cheaper mortgages, while keeping the training wheels on the housing finance market.

For anyone who hasn't been following along, here's a detailed explanation. For a quick refresher, the government agreed to back bigger mortgages in 2008 when the credit markets froze up. At that time through September of this year, the mortgage limit was 125% of the metro area's median home price in 2007 or $729,750, whichever was smaller. Prior to this jump, the limit was set at just $417,000. As of this month, that limit declined to 115% of the metro area's median home price in 2010 or $625,500, whichever is smaller.

You can see that this policy is specifically geared towards relatively expensive mortgages. It isn't meant to lend a helping hand to Americans on the cusp of home ownership. It isn't even meant to assist the average homeowner, who will have an income above the metro area's average. In any city, those who raising the limit would benefit will be relatively affluent. The old limits should be allowed to expire.

