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National Mortgage Professional
May 28, 2008

Economic growth package temporarily increases FHA loan limitsMortgagePress.compurchase, refinance, HUD, sub-prime loans Higher limits help families keep their homes Nearly a quarter of a million more families could be eligible this year to purchase or refinance their homes using affordable, Federal Housing Administration (FHA)-insured mortgages, thanks to the economic growth package signed into law by President Bush in February. The Economic Stimulus Act of 2008 will allow The U.S. Department of Housing and Urban Development's (HUD) FHA to temporarily increase its loan limits and insure larger mortgages at a more affordable price in high cost areas of the country. "The stimulus is providing immediate relief to homeowners," said former HUD Secretary Alphonso Jackson. "It raises the Federal Housing Administration's loan limits, enabling more families to qualify for a safe, affordable FHA mortgage. This is important. Families in high-cost states have been priced out of FHA-backed loans. This has created a vacuum, filled by exotic sub-prime loans. Families with home loans up to $729,750 will now qualify for an FHA loan, depending on where they live." Beginning in March, HUD offered temporary FHA loan limits that will range from $271,050 to $729,750. Overall, the change in loan limits will help provide economic stability to America's communities and give nearly 240,000 additional homeowners and homebuyers a safer, more affordable mortgage alternative. The maximum amount of $729,750 will only be applicable to extremely high-cost metropolitan areas such as New York, Los Angeles, San Francisco and Washington, D.C. "Many families all over the U.S. will benefit from this access to credit, and increasing these loan limits will inject much-needed liquidity into the housing market," said FHA Commissioner and Assistant Secretary for Housing Brian Montgomery. "Even moderate-cost states like those in the South and Southwest, such as Dallas, Houston, Augusta, [Ga.] and Tallahassee, [Fla.], will be helped, with most loan limits there rising to $271,050." There are 75 areas in the U.S., out of a total of approximately 3,200, which will be eligible for the highest loan limit of $729,750. Previously, FHA's loan limits in these very high-cost areas were capped at $362,790. The Economic Stimulus Act of 2008 permits FHA to insure loans on amounts up to 125 percent of the area median house price when that amount is between the national minimum, which is $271,050, and maximum, which is $729,750. The new minimum and maximum loan limits are based on 65 percent and 175 percent of the conforming loan limits for government-sponsored enterprises in 2008, which is $417,000. The FHA used a combination of existing government data sets and available commercial information to determine the median sales price for each area, and released the data approximately two weeks after the president signed the stimulus bill. The change in loan limits are applicable to all FHA-insured mortgage loans endorsed after the publication of the increased loan limits by HUD, and it lasts until Wednesday, Dec. 31, 2008. By increasing loan limits nationwide, FHA will provide much needed liquidity and stability to housing markets across the country. By focusing on 30-year fixed-rate mortgages, FHA helps homeowners avoid and escape the risks associated with exotic sub-prime mortgage products, which have resulted in rising default and foreclosure rates. In January 2009, FHA's maximum loan limit will return to $362,790, unless the U.S. Congress approves bipartisan legislation to permanently increase loan limits as part of the FHA modernization bill, which is still awaiting final approval on Capitol Hill. "In January 2009, the loan limits will return to their previous setting," Jackson said. "We need a more permanent solution. So, our next step must be to modernize the 74-year-old FHA. Two years ago, before the downturn, we introduced an FHA modernization bill to Congress. Our plan offers flexible downpayment requirements and higher loan limits. It would also enable the FHA to fairly price premiums, taking risk into account so the market makes rational decisions. We don't want anyone caught by surprise again. FHA modernization could help a quarter of a million families this year alone. It passed the House and Senate in overwhelmingly bipartisan fashion. But a final bill has yet to reach the president. Congress must act now!" Jackson noted that the administration could not wait for Congress to act: "Last August, the president and I introduced FHASecure. It helps responsible families who, having paid their bills on-time under the original interest rate, find themselves falling behind under the reset rate. For the first time, these delinquent families would be able to qualify for an FHA loan. 'Underwater' borrowers and those in the process of foreclosure may also qualify." Since August, FHA has helped 110,000 homeowners who were current or past due on their loans refinance, with an additional 200,000 expected by year's end. Jackson also discussed the administration's efforts with the HopeNow Alliance, an industry-led effort that has been reaching out to borrowers in trouble. HopeNow Alliance members have contacted over a half million homeowners. Their hotline now receives more than 4,500 calls a day. The industry has modified one million loans since the second half of last year, keeping homeowners in their homes. "We can create the conditions for recovery," Jackson said. "We can make the boom-bust cycle shorter and shallower. We can replace gimmicks and shortcuts with transparency and honesty. And we can take the necessary steps to prevent foreclosure. That's right, foreclosure is not inevitable, its preventable—and we have the tools to prevent it." Discussing recent efforts in Congress to bailout lenders, which the administration opposes, Jackson noted that: "Americans are a fair people. They want to help. But they understand that the answer to an economic challenge must ultimately come from the people who drive the economy. They want the tools of recovery in their own hands, and they do not want to kill the spirit of opportunity that made this country great." FHA loan limits are based on the county in which the property is located. However, for properties located in metropolitan or micropolitan statistical areas, the limit is set at that of the county with the highest limit within the metropolitan or micropolitan area. The new temporary FHA loan limits and the full text of Jacksons speech are posted on HUDs Web site, www.hud.gov. For more information, visit www.hud.gov or www.fha.gov.
Published
May 28, 2008
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