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Housing groups raise concerns over lower FHA loan limits

January 1, 2014


On Dec. 12 , nine influential groups sent a joint letter to the Department of Housing and Urban Development (HUD) Secretary Shaun Donovan raising concerns about lower singlefamily loan limits for Federal Housing Administration (FHA) loans slated to take effect on Jan. 1 . The groups included, among others, the Mortgage Bankers Association (MBA), the National Association of Home Builders (NAHB), the National Association of Realtors® (NAR) and the U.S. Conference of Mayors . HUD announced the hike in the FHA loan limits on Dec. 6 . In a press release announcing the changes, FHA Commissioner Carol Galante said, "As the housing market continues its recovery, it is important for FHA to evaluate the role we need to play." She added, "Implementing lower loan limits is an important and appropriate step as private capital returns to portions of the market and enables FHA to concentrate on those borrowers that are still underserved." The lowering of the FHA loan limits was called for in the Housing and Economic Recovery Act (HERA) of 2008. HUD stated that the move announced in early December 2013 would be "the first full implementation of loan-limit calculations under HERA." HUD noted, "Approximately 650 counties will have lower limits as a result of this change in the governing law." HUD's press release noted, "The higher limits that have been in place for six years were established by the Economic Stimulus Act of 2008 as emergency measures to assure that mortgage credit was widely available during a time when private lending options were severely constrained." The lower loan limits for FHA were originally scheduled to take effect in January 2009 , but ongoing weakness in the housing market convinced Congress to delay the drop in loan limits several times. As a result of the changes, the new national ceiling loan limit for the very highest cost areas will be dropped from $729,750 to $625,500 . The current standard loan limit for areas where housing costs are relatively low will remain unchanged at $271,050 . The housing and builder trade groups had a strongly worded response to the move to drop the FHA loan limits. The letter stated, "The undersigned organizations write to express strong concern with the Department of Housing and Urban Development's recent announcement of substantial reductions in Federal Housing Administration (FHA) loan limits in numerous counties across the country." The letter noted, "HUD has not provided information on its methodology for establishing the new loan limits, so it is not clear why many areas experienced limit reductions much larger than what was expected as a result of the statutory change." The groups stated, "Our analysis shows that more than 300 counties face reductions in FHA loan limits which are greater than 10 percent and appear to be independent of the expiration of the high-cost loan limits. In some counties the reduction in loan limits is over 50 percent." The groups asked HUD for public access to the process it used for determining the new lower limits. The letter concluded, "Without access to affordable low-down-payment financing, families are unable to purchase or refinance homes, and those who wish to sell will find it more difficult-all of which will continue to prolong our housing crisis." The groups said, "As proposed, the turbulence these reductions will create runs the risk of reversing progress being made in the economic recovery." The lower loan limits for FHA were originally scheduled to take effect in January 2009 .

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Source: Mortgage Banking

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