Restoring Higher FHA Loan Limits Provides a Much-Needed Boost to the Mortgage Market originally posted by the Home Builders Association of Alabama on December 6, 2011:
In an important victory for NAHB, the housing industry and consumers, Congress last month approved a much-debated initiative to restore higher loan limits through 2013 for mortgages backed by the Federal Housing Administration (FHA).
“We commend congressional leaders in both parties and each chamber of Congress for taking this action to boost overall mortgage liquidity in the marketplace, create jobs, and provide home owners and home buyers with safe and affordable financing,” said NAHB Chairman Bob Nielsen.
“Restoring the higher FHA loan limits will help to stabilize home values, provide constancy while
private investors re-enter the market and enable millions of creditworthy consumers to get home loans
with the best mortgage rates and lowest fees and downpayment requirements,” he added.
President Obama signed the legislation into law on Nov. 18.
When Congress allowed conforming loan limits to revert to their lower levels at the end of October and reapplied a more restrictive formula for determining loan ceilings in local markets, thousands of potential home sales were put in jeopardy — and not just in high-cost areas.
NAHB and its industry allies fought vigorously for an extension of the higher limits, and achieved a preliminary victory in the Senate with bipartisan support.
However, the effort to restore the higher FHA loan limits faced intense opposition from conservative forces in the House of Representatives who refused to support any measure that could be perceived as increasing the federal government’s role in housing.
This left many industry insiders strongly doubting that any loan-limit measure could be passed.
The outcome of the uphill legislative battle in Congress was shaped by lobbying by NAHB and its grassroots members. The association also conducted a teleconference for the major news media on why the loan limits needed to be raised.
On Nov. 14, NAHB succeeded in pushing through an agreement among lawmakers on both sides of the aisle to restore higher limits for mortgage loans insured by the FHA through 2013.
Approved by the House on Nov. 17 and immediately taken up and passed by the Senate, the measure reestablished a national ceiling for FHA mortgages of $729,750, up from $625,500.
The measure also restored local FHA loan ceilings to 125% of the area median home price, up from 115%, which NAHB economists say will help put a floor under falling home values in markets nationwide.
Unfortunately, in the face of extreme opposition in the House, legislators were unable to restore the higher loan ceilings for government sponsored enterprises (GSEs) Fannie Mae and Freddie Mac, which together provide funding for about half of all U.S. mortgages.
FHA mortgages are the only game in town for first-time home buyers who do not have the large downpayments required in today’s tighter lending environment.
The legislation addresses the 620 counties in the U.S. that were affected by the reduced FHA loan limits.
However, there are 204 counties that will continue to contend with lower limits for loans funded by the GSEs.
It is expected that many more home sales will be facilitated by the higher FHA ceilings, which will also be beneficial to buyers of new homes who must first sell an existing property.
The legislation also temporarily extended the National Flood Insurance Program through Dec. 16.
NAHB has been working with lawmakers to pass a five-year reauthorization of the program to bring stability to housing markets in the many parts of the country where flooding can occur and enable builders to provide safe, decent and affordable housing in those areas.
For more information, email Scott Meyer at NAHB, or call him at 800-368-5242 x8144.