Smart Borrower Blog

Changes to FHA intended to Spur Borrowing

Feb 5th, 2008 @ 11:39 AM by MortgageMentor

The latest word on the pending legislation with the economic stimulus bill is that the Senate and House are still ironing out some issues. The FHA conforming loan limit increase, from $417,000 to $625,000 as proposed by the House will be for a limited period of time only– two years. The increase would be even greater in high-cost areas, as much as $730,000 which is great news for those who couldn’t even begin to find a house under $625,000 in their area. This is for government-sponsored loans, like those of the FHA (Federal Housing Administration and GSE (the Government Sponsored Enterprises).

Realtors tell me this will make more low-interest mortgages available to first-time homebuyers and young families. They feel this will increase home sales, which ultimately will help to stabilize the housing market, and therefore the economy.

Without the increase, many borrowers in high-cost areas are unable to take advantage of FHA loans. In fact, FHA’s market share of loans has been declining over the past ten years. And allowing Fannie Mae and Freddie Mac to purchase loans with the higher balances should stimulate more financial institutions to make the loans. In the past, because there was no secondary market for them, lenders were unable to sell the loans and then fund new ones, so they had little incentive to make them.