Conforming Loan Limits Update – And a Surprise from FHA?

by John Glynn on November 16, 2011

FHA loan limits by a nose! - or, $104,250 over Conforming loan limits

FHA loan limits by a nose! - or, $104,250 over Conforming loan limits

UPDATE 11/18/11: The FHA loan limits have been raised through 2013. High cost counties – including all in the Bay Area will see a maximum FHA loan amount of $729,750 once again.

The latest chatter on conforming loan limit increases has taken a surprising turn. On October 1 of this year, the conforming loan limits peeled back from a ceiling of 729,750 to 625,500. A month prior, FHA loan limits were rolled back to the same level.

Since that time, there have been a few efforts in congress to get the former limits reinstated, and extended through the end of 2013. These efforts have focused mainly on the conforming loans backed by Fannie Mae and Freddie Mac, and expectations of any changes in FHA have been less discussed.

Now, FHA loan limits look to be leading the pack on the way back up through 2013. Conforming loan limit extensions have lost support… again.

The housing market is not viewed as being stable enough to withstand any removal of support, even if the impact was expected to be minor. This is the basic premise driving the debates and legislative efforts.

The impact of recently lowering the loan limits has been concentrated in counties where the median real estate prices are highest, such as Alameda, San Francisco, and Contra Costa. So we’ve been watching closely to see if the higher limits would come back.

Timing sure is a funny thing. While the effort to bring these limits back gained support from the Congress, so did a measure to block bonuses to executives of the two giant mortgage corporations, which are currently under US conservatorship.

So we’ve got a swelling anti-banker, anti-executive, anti-establishment movement in Occupy Wall Street and a general view that people in the “high cost” counties, where higher conforming loan limits would have an impact, are closer to the 1% than they are to the 99%. The so-called “bailing out” the rich folks is not a popular view at the moment.

Fannie Mae and Freddie Mac back funding for roughly half of all home financing transactions nationwide. For now, it appears their “conforming” loan limits will remain in place at 625,500.

The extension of FHA loan limits to 729,750 through the end of 2013 looks to be well-supported, and could be finalized in a matter of days.

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