Congress votes to raise FHA loan limits
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The measure would push the so-called conforming loan limit in the highest-priced real estate markets back up to $729,750 through 2013, from $625,500, a sign of lawmaker
concern over the still-depressed state of the housing sector.
After the 2008 banking crisis of 2008, the limits, which vary from market to market, were temporarily raised when banks became reluctant to lend. They automatically dropped back on Oct. 1.
Lawmakers decided not to raise the loan level for Fannie Mae and Freddie Mac, which have soaked up about $169 billion in taxpayer aid, as they sought to strike a balance between supporting the market and starting to shrink the government’s housing footprint.
Seeking to avoid a polarizing debate, members of the House and Senate decided to link the mortgage measure to must-pass legislation that includes funding for a large swath of federal
programs, from food inspection to law enforcement.
FHA, which does not make loans, provides mortgage insurance to borrowers without enough of a down payment to qualify for prime loans. With an FHA loan, home buyers can put down as little as 3.5 percent.
The agency, which is mainly funded through insurance premiums it brings in, backed about one-third of loans used to purchase homes last year.
The measure to raise the FHA loan limits still has to pass the Senate before becoming law; Senate approval could come as early as Thursday night with lawmakers laboring against a Nov. 18 deadline, when current government funding expires.
The Obama administration and many lawmakers of both parties want to reduce the government’s role in supporting the housing
finance system, and the White House sees expiration of the higher loans limits as a first step.
Some Republicans splintered from their party’s general consensus that the government should no longer risk the cost of subsidizing home loans on a grand scale. Lawmakers from states
with pricey real estate markets, such as California and New York, argued that withdrawing support could hurt the market.
The housing industry and consumer advocates mounted an intense lobbying effort to convince officials the time was not yet ripe to reduce government support.
Some conservative groups fought raising the loan limits, with the influential Club for Growth warning that the government was distorting the market and impeding a recovery.
FHA, which traditionally has supported low-to-moderate income households, said Tuesday that its capital reserves had dwindled over the past year. But it rebutted the contention of some analysts that it will likely need to turn to the U.S. Treasury for a bailout.