Today, the vote is in to return the FHA loan limits to the previously set amounts which expired on october 1st. Read the complete Wall Street Journal story below:
U.S. lawmakers moved Thursday to increase the maximum size of loans that can be guaranteed by the Federal Housing Administration, even as a top Obama administration official expressed doubt about the need for the change.
A spending bill passed by Congress increases to $729,750 the maximum size of a mortgage that can be backed by the FHA, which guarantees loans to buyers with down payments as low as 3.5%. The Senate voted to approve the bill Thursday evening, after the House voted earlier in the day.
Some Republicans in the House and Senate were upset by the move, arguing that it contradicts a goal of both parties to reduce the U.S. government’s role in propping up the housing market. “I am just absolutely so discouraged at Congress in lacking the courage to deal with this issue,” said Sen. Bob Corker (R., Tenn.).
An earlier version of the legislation in the Senate would have increased loan limits for mortgage finance companies Fannie Mae and Freddie Mac as well, but that was stripped out due to opposition from House Republicans.
The loan limit fell to $625,500 on Oct. 1 in expensive markets like New York, San Francisco and Washington. They declined in around 250 counties for Fannie and Freddie, and around 600 counties saw FHA limits drop. In some cases, the FHA loan limits fell below those of Fannie and Freddie.
Carol Galante, the Obama administration’s nominee to lead the FHA, told Senate lawmakers that the administration continues to support reducing the limits.
“We maintain that it is appropriate to take a step back on the loan limits,” Ms. Galante told Senate lawmakers. However, she noted that because housing markets around the country remain weak, “there are reasonable people who may want to see us continue to stay in the business.”
The move by Congress will give borrowers seeking loans between $625,500 and $729,750 in pricey markets two options. They can take out “jumbo” loans that carry higher interest rates than those backed by Fannie and Freddie and require down payments of at least 20%. Or, they can take out an FHA loan, which allows for lower down payments but charges insurance premiums that add to borrowers’ costs.
Housing industry lobbyists pushed for Congress to reinstate the higher limits for Fannie, Freddie and FHA, citing concerns that any steps to raise borrowing costs might be too much for fragile housing markets to bear. Another Republican criticism of the action is that it would primarily benefit affluent neighborhoods.
“This means that taxpayers will be subsidizing the purchase of expensive homes by wealthy buyers,” said Sen. Richard Shelby (R., Ala.).
However, Sen. Robert Menendez (D., N.J.) said that restoring the loan limits will benefit the housing market at a time when it is weak. Doing so, he said, “won’t cost taxpayers a dime” and will benefit the housing market in many other parts of the country besides those cities.
The move by Congress came after an annual independent audit found the FHA’s cash reserves are now so depleted that there is close to 50% chance the agency could run out of money and require a taxpayer bailout in the next year.
In the past four years, as private lenders have pulled back from the mortgage market, the FHA’s market share has swollen. It backed one third of mortgages used to finance home purchases last year, up from around 5% in 2006. The FHA doesn’t make loans but insures lenders against defaults on mortgages that meet its standards.
No comments:
Post a Comment