Unless Congress takes action, loan limits for mortgages insured by the Federal Housing Administration will likely decline in 669 of the 3,334 counties in the United States, according to an analysis brief published last week by the Department of Housing and Urban Development.
After seeing the financial markets start to unravel, Congress stepped in and temporarily increased the size of the loans the government agency could insure in 2008. Barring Congressional action, FHA loan limits will revert back to loan limits determined under the Housing and Economic Recovery Act on or after October 1, 2011.
According to the report, approximately 3% of loans (33,301) and 6% by dollar volume ($14.2 billion) endorsed would not have closed if HERA limits had been in effect during 2010. In calendar year 2011 to date (January through April), approximately 2% of endorsed loans by count (6,673) and 7% by dollar volume ($2.8 billion) would have been affected.
Several trade groups have urged Congress not to reduce loan limits at this time, fearing it would reduce the availability of mortgage loans across the country and increase the cost of capital to consumers.
“Allowing the current loan limits to decrease will have an immediate negative impact on mortgage availability,” said Ron Phipps, President of the National Association of Realtors during testimony before the House Financial Services Subcommittee on Insurance, Housing and Community Opportunity last week. “FHA has played a critical role in holding down mortgage rates. Without FHA, the higher mortgage rates paid by consumers would flow into noncompetitive banks that are too big to fail.”
It’s unclear whether loan limits for FHA’s Home Equity Conversion Mortgage (HECM) program will remain at $625,500 at the start of fiscal year 2012.
“Loan limits for the FHA reverse mortgage program, the Home Equity Conversion Mortgage (HECM), are established under separate legal authority from loan limits for the forward loan program,” said the report. “Loan limits beginning on October 1, 2011 for HECM loans are currently under review and additional guidance will be provided in a subsequent communication to borrowers and the industry.”
HERA stipulated that HECM loans insured on or after November 6, 2008 will have a loan limit equal to the national conforming limit. For high-cost areas, the mortgage limits for HECM was allowed to increase up to 115% or $625,500—whichever is less.
Currently, reverse mortgages insured by FHA have a maximum loan limit of $625,500. The higher loan limit was established by Congress when it enacted the American Recovery and Reinvestment Act (ARRA) in February 2009.
If HECM loan limits do decrease, it’s likely they will fall back to $417,000, the national conforming loan limit in 2008.
View a copy of the report.