Under heavy pressure to crush the housing crisis, many lawmakers are considering the loan limits for FHA financing. Many FHA lenders in California, Colorado, Virginia, New York and Washington have expressed their concerns regarding the pool of borrowers that would no longer be able to access FHA for purchase mortgage and home refinance options. Most lenders who originate FHA loans in these high cost states agree that higher loan amounts who help many areas that were devasted by housing crisis. The movement to reinstate higher FHA limits is in full-swing in House and the Senate. However it doesn’t appear that government sponsored enterproises like Fannie Mae and Freddie Mac would not be included in the measure or spending bill.
The loan limits fell from a maximum $729,750 to $625,000 on the first of October earlier this year. This affected 600 US counties for FHA, but less than half of that for Fannie Mae and Freddie Mac. FHA is not a lender rather an insurer of home loans for approved lending companies. It is currently the only low down-payment finance option left in the mortgage industry as they only require a 3.5% down-payment from perspective home buyers. The VA does offer 100% financing but it is only available to military borrowers.
Now the FHA market-share could expand even more because it would likely take over some of the share presently held by Fannie Mae and Freddie Mac. In a phone interview today, FHA commissioner Carol Galante said, “This is a scenario that has never happened in the past in which FHA has higher loan limits than Fannie Mae and Freddie Mac. According to mortgage analyst Brian Chappelle at Potomac Partners It could increase FHA volume by 10%. “The higher loan limits would help raise FHA reserves if the defaults don’t increase. Every recent audit has said larger loan amounts perform better than smaller loan amounts says Chappelle. “If it wasn’t for the FHA loans insured in 2009-2011 FHA would already be needing taxpayer assistance.”
