Will FHA loan limits go even higher?
Thanks to the Economic Stimulus Act of 2008, maximum FHA loan limits were pegged at $729,750 for a single family residence and were recently extended for another year. And there is at least one legislator who wants to increase these limits even more - to $839,750.
According to a recent interview, the Massachusetts Democrat who is chairman of the House Financial Services Committee, said he plans to introduce legislation next year raising the maximum F.H.A. loan by $100,000, to $839,750. He also stated that his bill would make the new limits permanent.
One area of the country where this is having an impact is San Francisco - where FHA has historically been pretty much a non-factor when it comes to financing your home.
Kenneth Donohue, inspector general for the Department of Housing and Urban Development, the parent agency of the F.H.A., said the higher loan limits were increasing the potential risk to the F.H.A. Last week, the agency said its cash reserves had fallen below their Congressionally mandated minimum because of the large volume of foreclosures.
“If one of these higher-limit loans fail, that’s equivalent to two or three cheaper loans,” Mr. Donohue said. “You have to ask yourself, was the F.H.A. ever intended to address these markets?”
He sees another risk: larger loans will be a greater draw for those who want to commit fraud. That would exacerbate a problem already besetting the agency.
Whenever there is very little money used as a down payment (3.5%) it really requires careful analysis of what is at risk and what the long term plans of living there are. While property values have historically increased in many parts of the country, this is no longer a given - and if the financial model is for property values to simply hold their value and not increase or decrease - many times buyers will lose money on a property after Realtor commissions are calculated.
Even some San Francisco agents who are doing F.H.A. deals worry about the long-term consequences. Real estate commissions are 6 percent. If the value of a property were to hold steady, a seller who put down the F.H.A. minimum would suffer a loss after fees. And while the Bay Area has traditionally been an excellent investment, the last few years have proved a big exception.
“Is this going to be the next wave of the housing downturn?” asked Eileen Bermingham, an agent with Pacific Union. “With such a minimal down payment, how do we make sure people don’t get in over their heads?”