For the last few months, we have heard whispers in regards to HUD minimizing the 2012 FHA loan limits. The reality is that lower loan limits will have an adverse effect homeowners, new prospective home buyers and mortgage professionals, especially in high cost regions like California, Colorado, New York, New Jersey and Washington D.C. In a recent article, Lew Sichelman discusses the pending changes for conforming and FHA loan limit in 2012.
What is the Maximum Loan Amount with FHA in Your Neighborhood?
Unquestionably the revisions on home loan limits will have a significant impact on the FHA home loan programs. These are mortgages insured by the Federal Housing Administration, because they have been more aggressive on credit and home equity guidelines compared loan programs securitized by Fannie Mae or Freddie Mac. Sichelman revealed in a recent analysis that FHA loan limits will likely be reduced in 669 of the 3,334 counties or county equivalents when the ceilings revert back to the levels determined under the Housing and Economic Recovery Act of 2008.
To Get More Info on FHA Limits and Loan Amount Eligibility (no cost or obligation)
Congress has extended FHA loan limits in 2009, 2010 and 2011 on an annual basis, but in the upcoming year it appears that Fannie Mae, Freddie Mac and FHA will reduce maximum loan limits rather than extend them. Unfortunately this will reduce the pool of homeowners looking to refinance with FHA. Many FHA lenders are concerned that the reduced 2012 FHA loan limits will have a negative impact on their business. Many economists also point that if HUD reduces loan limits on FHA home loans it could actually trigger an increase in foreclosures, because more homeowners will be unable to find affordable home loans.
How Will Lower FHA Loan Limits in 2012 Effect Loan Origination?
The lower FHA limits will take place on October 1 unless Congress intervenes. That’s almost three times as many markets that will be affected when it comes to loans that conform to the limits placed on Fannie/Freddie mortgages. According to an earlier analysis by the Federal Housing Finance Agency, only 250 county or county-equivalent areas — a “small fraction” of the total, the FHFA said — will be affected by the pending change. The government home finance analysis indicates that its FHA loan limit would fall by more than 5% in eight states — Arizona, California, Colorado, Connecticut, Massachusetts, Maine, New Hampshire and Oregon — as well as the District of Columbia. When evaluated for the potential impact on the number of loans eligible for government insurance, Colorado, Maine and Oregon fall off the list and Nevada and Puerto Rico come on.
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The FHA analysis reported a total of 44 Puerto Rican municipalities would feel the greatest pinch, with a projected decline in 2012 FHA loan amounts of a whopping $221,000. But that would only impact 4% of those areas’ loan count. Other places would take big hits, too. The limit is projected to fall by $75,200 in Maricopa County, Ariz., from $346,250 to $271,050. In Los Angeles County, the lid would drop $104,250, from $729,750 to $625,500. But in Mendocino and San Joaquin Counties in California, it would sink by $138,750 and $184,000, respectively. The change could be equally as tough on the East Coast, too. In Monroe County, Fla., for example, the FHA maximum is projected to plunge by $200,500, from $729,750 to $529,000.
Until three years ago, FHA mortgage limits were set at 95% of the median price house price for each particular area. But the maximum could not exceed 87% of the ceiling placed on the GSEs or go lower than 48% of that ceiling. In February 2008, however, Congress changed the formula in an effort to mitigate the economic downturn by temporarily setting the limit at 125% of the area median but not to exceed 175% of the GSE limit of $417,000. Five months later, though, lawmakers changed the rules again when they passed the recovery act, this time by assigning the task of setting the conforming loan limit to the newly created FHFA.