House Financial Services Committee Chairman Rep. Barney Frank (D-MA) issued the following statement regarding recent press reports on FHA loan limits: “Recent press reports about FHA loan limits have created the mistaken impression that federal loan limits allow loans up to $729,750 anywhere in the country. This is simply not true. In fact, there are only 77 counties where an FHA loan as large as $729,750 can be made, and less than 2% of FHA’s outstanding loan portfolio consists of loans which exceed $417,000, the previous GSE conforming loan limit. The average FHA loan made in Fiscal Year 2009 was only $185,278. FHA always has and will continue to focus on loans to middle and lower income families. Real estate markets are the most local of markets and a single national standard makes no sense.
“The reason Congress recently changed FHA (and GSE) practices to allow higher cost loans was to ensure that affordable mortgage credit was available to middle income families in areas with higher priced homes. Several years ago, Bush Administration officials came before Congress to testify that FHA was effectively out of the market in major portions of California, New York, and Massachusetts, because the restrictive, one size fits all national ceiling was well below median home prices in those areas. So Congress changed the law to allow the FHA to finance higher cost homes in higher cost areas. This was not a new approach; the law already permitted FHA loans to be 50% higher in Alaska and Hawaii, because of higher home prices in those areas. And, the concept of housing price and income-based differentials is not new to federal housing policy. For decades, home price and income limits have been in place for various HUD and mortgage revenue bond programs in order to reflect varying local area characteristics.
“But it is important to keep in mind that Congress retained the longstanding separate FHA provision that still limits loans in all areas based on the median home prices in those areas. In areas where the median home price is low, the FHA limit is correspondingly low. Thus, in a majority of counties the FHA loan limit is only $271,050, which represents the nationwide FHA loan floor.
“Finally, instead of representing a financial threat to FHA, allowing these higher priced loans allows for more geographical diversification for FHA. And, the just recently completed audit of FHA concluded that higher cost loans actually have a lower claims rate than lower cost loans.”
For more information, visit www.house.gov.
