Many are surprised at the discussions regarding FHA loan limits being reduced in 2011. If HUD and Congress decide to lower the loan limits it could have a dramatic effect on many homeowners in high cost regions in many states that currently have access to government home loans. Today’s FHA mortgage rate remains under 5% on fixed 30-year terms.
A few years ago, in an effort to revive the sluggish housing sector, Congress voted favorably for FHA, Fannie Mae and Freddie Mac to support home mortgages as high as $729,750 in high cost regions. The raised mortgage limits were significantly higher than the standard maximum loan amount of $417,000. The Wall Street Journal reported that without an extension on the higher FHA loan limits, that the $729,750 level would likely drop to $625,500 in 2011. However there may be another obstacle— FHA loan limits in even more counties could be reduced because of temporary extensions that enabled FHA to insure jumbo loans. There’s a nationwide ceiling for FHA loan limits, which is set at $271,050 and this is well below the $417,000 limit that is used for Freddie Mac and Fannie Mae.
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* FHA Rates at Record Lows!* FHA Streamlines Require No Equity* FHA Short Refinance Reduce Principal Balances for Underwater Mortgages
* Higher FHA Loan Limits Help Borrowers in High Cost States |
WSJ noted that “most counties are somewhere between the floor and the ceiling, because 2011 FHA loan limits vary by region as they are targeted to meet local median home prices. Under existing law, those limits are set at 115% of the local median price; under the expanded loan limits that are currently in effect, the limits are set at 125% of the local median price. The current loan limits are also higher because they’re set using housing bubble-era median prices, which are significantly higher than today’s prices that would be used to recalculate the new loan limits. This means if Congress doesn’t again extend the higher limits, they’ll be starting from a much lower level next year, and the multiplier effect—115% versus 125%—will be lower, too. The FHA mortgage market continues to increase its market-share so clearly the consumer demand remains strong for FHA loan programs.
According to the White House, the Obama administration supports extending the FHA loan limits for another year for these reasons. The FHA’s commissioner, David Stevens said, “We’re not talking about wealthy millionaires. We’re talking about the average American’s ability— to finance a home.”
The National Association of Realtors says that nearly 20% of U.S. counties—including almost the entire state of California, would see FHA loan limits fall in 2011 if the current extension expires. The FHA mortgage limits don’t expire until the end of the year, but the real-estate industry is anxious for Congress to pass an extension soon because banks aren’t going to wait until December 31st, 2010.
The Wall Street Journal reported that the consensus estimated from MacroMarkets LLC survey of 114 economists is that house prices will only increase by 0.8% in 2011. This means that home prices by the end of next year could remain where they were at the end of 2009.
It remains to be seen what will be done for 2011 FHA loan limits. Lowering the loan limits could back-fire and actually increase foreclosure rates, because many struggling homeowners in high cost regions would not be able to refinance into a more affordable payment. We know that lower monthly payments reduce the foreclosure rates so maybe HUD and Congress will come to their senses and do the right thing.
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3 comments so far
[...] for many high loan amount programs is about to expire. Many believe that Congress will reduce the 2011 FHA loan limits. The FHA limits are set to expire as well and HUD’s favorite first time home buyer program could [...]
[...] passed, the Congress also extends the maximum 2011 FHA loan limits to $625,500 for FHA-insured reverse mortgages and provides an additional $20 billion loan [...]
I was hoping limits would be raised in my area (Ohio) because I’m starting to see more and more borrowers in higher end areas that would be better serviced if they could go FHA. I’ve got many refinance deals right now that are being hit with as much as 3-4 points in adjustments with Freddie and Fannie. Someone really needs to think this out before letting this extension expire.
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