Congress set to raise FHA loan limits

Democrats and Republicans in Congress recently created a measure that would increase the maximum size of mortgage loans insured by the Federal Housing Administration after lowering the limit at the end of September. The loan limit was temporarily raised at the onset of the financial crisis for Fannie Mae, Freddie Mac and the FHA but was lowered to its original $625,500 limit.

Reuters reported the agreement does not involve loans originated by Fannie Mae or Freddie Mac, just those insured by the FHA, pushing the limit back up to $729,750 through 2013. Loans backed by Fannie Mae and Freddie Mac account for roughly half of U.S. residential home loans, but the measure is working with FHA loans as the partisan debate continues over what role the government should play in the housing market.

According to Bloomberg, the new bill would offset the potential cost to taxpayers by imposing a new premium loan fee on mortgages between the lowered loan limit and the raised one. The interest rate on these loans would be 0.15 percentage points higher than other loans.

Beth Peerce, president of the California Association of Realtors, told the source that the lower limits were hurting home sales for more expensive properties, which could have a ripple effect causing many homeowners to not move at all.

"When you stop any one segment of the market, it affects the entire market," Peerce said.

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