Economic growth package temporarily increases FHA loan limitsMortgagePress.compurchase, refinance, HUD, sub-prime loans
Higher limits help families keep their
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
"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
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.