Loan Modification

High FHA loan limits continue into 2011

By Peter G. Miller

FHA loan limits will remain at the high levels first introduced in 2008.

Under HR 3081, the Department of State, Foreign Operations, and Related Programs Appropriations Act, the FHA loan levels for owner-occupied properties will generally remain at the following levels:

One-Unit ? $271,050
Two-Unit ? $347,000
Three-Unit ? $419,400
Four-Unit ? $521,250

If you live in a so-called “higher cost” area then the limits will be:

One-Unit ? $729,750
Two-Unit ? $934,200
Three-Unit ? $1,129,250
Four-Unit ? $1,403,400

Finally, if you live in Alaska, Hawaii, Guam and the Virgin Islands your FHA loan limits will be:

One-Unit ? $1,094,625
Two-Unit ? $1,401,300
Three Unit ? $1,693,875
Four-Unit ? $2,105,100

Limits Too High

“Our nation’s housing market is essential to the American economic recovery,” says outgoing House Speaker Nancy Pelosi. To ensure that the housing market continues to recover from the effects of the subprime debacle and the ensuing economic downturn, Congress has taken swift action in the Continuing Resolution to extend single family loan limits for the Federal Housing Administration and Fannie Mae and Freddie Mac through the end of fiscal year 2011.

“An expiration in the higher loan limits could have done great harm to our fragile economy nationwide. Instead, we have helped keep the mortgage market functioning and ensured that home mortgages are available and affordable for consumers.”

I’m not so sure we’ve helped consumers or the economy with high FHA loan limits.

The basic “problem” is that FHA loans are terrific. You can buy with just 3.5% down plus closing costs — that’s a down payment of $25,541 for a property with a $729,750 mortgage.

I am keenly aware that in some areas $730,000 will not buy a lot of house, but is that an FHA problem? Should not the private sector be able to offer jumbo mortgages and take the risk that such financing might go bad?

The purpose the of FHA program is not to fund the rich or enrich the lending community. Instead, the FHA should be helping first-time homebuyers as well as those with low and moderate incomes.

The National Association of Realtors reports that the typical existing home sold for $177,900 in the third quarter. A home costing $756,217 could be bought with a cash down payment of $26,467 plus an FHA loan for $729,750.

In other words, that $756,000 property costs four times the price of a typical home.

The FHA, via an act of Congress, is now in the luxury home support business. It’s insuring huge loans that require little down in a marketplace environment which is saturated with risk. This may be great for home builders, lenders, the rich and the famous, but the FHA program is being distorted.

According to the Federal Housing Finance Agency, for the 12 months ending in August, U.S. home prices fell 2.4 percent. The U.S. index was 13.6 percent below its April 2007 peak.

You have to wonder, is this really the best idea elected officials have to assist home ownership?

Full post as published by FHA Mortgage Guide on November 15, 2010 (boomark / email).