FHA Loan Limit Raised, Despite Opposition

FHA loanCongress moved to raise the loan limit for mortgages backed by the Federal Housing Administration on Thursday, despite some lawmakers' fears of artificially propping up the market.

The bill increased the ceiling on the loans to $729,750, up from $625,500 in October, says The Wall Street Journal. The loan limit had been raised to this level before in an attempt to promote homeownership during the height of the recession, but it was allowed to expire, The Associated Press reported.

With as little as 3.5 percent down payment required to close on an FHA loan, the program has long been promoted as an option for first-time homebuyers. But critics have claimed that the higher loan limit exceeds the needs of most first-time buyers and places too much pressure on the federal government to subsidize housing.

On the other hand, proponents of raising the limit argue that historically expensive markets, like New York and San Francisco, require the FHA to raise their ceiling to be useful to buyers. Around 600 counties were affected by the FHA loan limit drop in October.

The bill was not without compromise, however. Proponents in the House and Senate had to shed a similar limit raise on loans held by government-sponsored mortgage giants Fannie Mae and Freddie Mac. The limit placed on the two major mortgage finance companies remains at $625,500.

The news comes after an audit of the FHA revealed that there is nearly a 50 percent chance that the administration will require a federal bailout next year if the market worsens, according to The New York Times. The FHA, which was founded in 1934 in the wake of the Great Depression, has seen much of its cash reserves dwindle in the past few years, as mounting foreclosures cost the agency billions in insurance claims. The administration is down to $2.6 billion in cash reserves, down from $4.7 billion last year, the Times reports.

To learn more about first-time buyer mortgage options, watch the video below.




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