FHA Announces Higher Loan Limits
As part of the Economic Recovery Act, the FHA loan limits were increased. The new higher loan amounts are effective until December 31, 2009. The higher loan limits will allow many borrowers with jumbo mortgages to refinance at much lower rates than would be available under jumbo mortgage pricing.
Due to the high level of defaults, banks are becoming very reluctant to approve jumbo mortgage loans for either purchases or refinances. Since Fannie Mae and Freddie Mac will not buy or insure jumbo loans, the lending bank must assume all the risk, keep the loan on their books and set aside additional reserves for possible losses. All of these additional risk factors are reflected in the higher jumbo rates and strict loan underwriting guidelines – see Jumbo Mortgage Rates.
PRESIDENT’S ECONOMIC RECOVERY PACKAGE TO MAKE MORE FAMILIES ELIGIBLE FOR FHA-INSURED MORTGAGES
FHA implements temporary higher loan limits to help families keep their homes
WASHINGTON – More American families will be eligible this year to purchase or refinance their homes using affordable, FHA-insured mortgages, thanks to the economic stimulus package signed into law by President Obama last week. The American Recovery and Reinvestment Act of 2009 will allow HUD’s Federal Housing Administration to temporarily increase its maximum loan limit, allowing FHA to insure larger mortgages at a more affordable price in high-cost areas of the country.
“This is one of many elements of the President’s recovery plan that will help homeowners and homebuyers in these high cost areas secure lower cost mortgage financing,” said HUD Secretary Shaun Donovan. “These loan limit increases will help FHA continue to provide safe, affordable mortgage products to families in all areas of the nation. Today’s announcement is just one example of how the President’s recovery and homeowner affordability plans work together to make homeownership more affordable for those looking to buy a house or refinance their current loans.”
HUD will increase FHA loan limits up to $729,750 in high-cost metropolitan areas such as New York, Los Angeles, San Francisco and Washington, D.C. There are 73 counties in the U.S. that will now be eligible for the highest loan limit of $729,750. Previously, FHA’s loan limits in these high-cost areas were capped at $625,500. The change in loan limits is applicable to all FHA-insured mortgage loans originated until December 31, 2009.
Increasing loan limits will help FHA continue to provide needed stability to housing markets across the country. As conventional sources of mortgage credit have contracted, FHA has been filling the void. From September to December 2008, FHA facilitated $97 billion of much-needed mortgage activity in the housing market, $35 billion of which was through FHA’s refinancing products. By focusing on 30-year fixed rate mortgages, FHA helps homeowners avoid and escape the risks associated exotic subprime mortgage products, which have resulted in rising default and foreclosure rates.