If a bipartisan group of congressmen and –women get their way, the maximum size of mortgage loans that can be insured by the Federal Housing Administration (FHA) will once again be capped at 729,750 through 2013[1]. The cap dropped back down to 625,000 this past October, which critics have argued may have destabilized the fragile housing market by making financing for higher-end homes even harder to get and potentially driving prices down. “Higher FHA loan limits are critical to supporting current housing prices…and it doesn’t cost the federal government a dime,” says California democrat Brad Sherman.
However, recent news that the FHA has far too few cash reserves to cover potential losses has some analysts worried and voicing concerns that the FHA may already be holding too great a market share. “One year ago, Americans sent a message that they wanted to end the subsidies and bailouts that have crippled our economy,” complained the Tea Party-Conservative Club for Growth, adding that “raising the FHA loan limits again is a step in the exact opposite direction”[2]. Professor of real estate finance Joseph Gyourko, who was involved in the independent audit revealing just how few cash reserves the FHA really has on hand, predicts that “unless the economy makes a swift recovery…FHA will need a massive taxpayer bailout – between $50 and $100 billion.” Gyourko blames low down-payment requirements and a high number of mortgages on homes with negative equity for the risky situation.
Do you think that loan limits should be raised again?
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[1] http://nationalmortgageprofessional.com/news27316/bipartisan-agreement-reached-raise-fha-loan-limits
[2] http://www.cnbc.com/id/45306545
Substantially increase MI for loans >$625,000
I shed no tears for high-end homebuyers except when they are extended families using multiple incomes to qualify for a loan. All the tinkering with GSEs is not going to fix the problem of primary lenders. Until we break up the banks that are too big to fail, turn out everyone who brought us our current crisis, tax the profit out of financial transactions that banks should be prohibited from engaging in in the first place, discourage income inequality by having government no longer do business with the banks that further such inequality, and bail out borrowers by lowering principal until the borrowers’ equity is restored, the US will continue its slide into mediocrity and unequal opportunity.
The fact remains that as higher-end home loss even more value this will cause a wave of decreased value down the food chain. I contend that higher-end borrowers pay more in taxes and should also be given the same programs as the other borrowers. If values continue to drow the losses would be greater than if and when the housing market becomes stable and people stop walking away from their homes.