Loan limit, good or bad?

A recent George Washington University study found the Federal Housing Administration's current loan limits are larger than needed to assist first-time and low to moderate income borrowers. The administration's proposal to reduce the loan limits would have little impact as larger changes are required, the study reported.

The report found that the FHA only needs 9 to 15 percent of mortgage originations to serve its target population, as opposed to the administration's estimate of 30 percent. The report recommends that the FHA reduce the loan limit in the lowest cost markets to $200,000, return the loan limit in high cost markets to $363,000, and use current area median home price when deciding the local loan maximum.

Credit Union Times reported that while the loan limit was raised in 2008 to increase loan guarantees when capital was hard to find, the California Association of Realtors found that these jumbo loans require a higher down payment, which negatively affects housing affordability.

President of CAR Beth Peerce told Pleasanton Weekly that reducing the conforming loan limit will prevent thousands from buying a home.

"The higher mortgage loan limits are critical to providing liquidity in today's housing market and are essential to our housing recovery," Peerce said.  

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