Lawmakers Plan to Raise FHA Loan Limits Again

Congressional and senate lawmakers are seeking to raise FHA mortgage loan limits.

Originally, FHA loan limits were raised during the housing crisis in 2009. As private lenders high-tailed it out of the market and government-backed agencies were left to pick up the mortgage lending slack, loan limits for loans backed by Fannie Mae and Freddie Mac were temporarily raised as well.

In New York, Los Angeles, and San Francisco, where home prices were above the $625,000 loan limits, Congress temporarily raised the loan imits to $729,750 due to the expensiveness of an area. This raise aimed to help people who couldn’t make large down payments buy.

However, now the Obama Adminstration, as well as some Democrats and Republicans from Congress, would like to see the government play a smaller role in the mortgage market. Currently the FHA, Fannie, and Freddie together currently back about 90 percent of the countries home loans. These supporters want the lowered limits that became effective October 1.

Proponents of raising the limits again say the housing market is still too fragile to pull out government support, but critics say that it is time for private lenders to return to the scene and remove the housing market burden from taxpayers.

The agreement that House and Senate leadership reached Monday would leave loan limits for Fannie and Freddie alone, but would raise them for the FHA. Ironically, as the Wall Street Journal blog reported, this would not actually decrease the government’s role in housing; it would eliminate competition for the FHA in the highest price brackets, effectively making FHA loans the most attractive.

The agreement now goes back to both houses and the full House and Senate must pass this new proposal by Nov. 18.