The government keeps saying it wants to reduce its presence in the housing and mortgage sectors. But not just yet.
A bipartisan panel of House and Senate lawmakers reportedly has cut a deal that, if passed by Congress, would allow the Federal Housing Administration (FHA), which guarantees about one-third of all the mortgages written currently, to back mortgages as high as $729,750.
FHA and the government-sponsored agencies Fannie Mae and Freddie Mac back about 90% of all new mortgages. Currently, the three agencies are managing about $4.5 trillion in mortgage debt. On October 1, the largest mortgage they could guarantee was scaled back to $625,500, and the calculation for determining loan limits was reduced to 115% of a given market’s median home price from 125%. In some markets, FHA’s loan limit is as low as $271,050.
The panel’s agreement to raise FHA’s mortgage cap “is certainly good news for the 620 counties that had experienced a decline in the FHA’s loan limit,” says Robert Dietz, an economist with NAHB, who spoke with Builder on Tuesday. “It helps the traditional FHA borrower, who is often a first-time home buyer. But it’s also kind of a glass-half-full exercise because it’s bad news for the 200-plus counties that still have lower Fannie and Freddie limits.”
NAHB also issued a statement from its chairman, Bob Nielsen, who said that FHA is "a great example of a public-private partnership with lending institutions. Restoring loan limits will provide millions of potential consumers in markets throughout the nation access to safe, affordable financing." He urged Congress to support this bill "to help American families and get the lackluster eocnomy moving forward."
Raising FHA’s loan cap—and therefore its funding—could come in the nick of time, as the agency apparently is running out of cash to cover anticipated losses, according to TheWall Street Journal, which reported on the House-Senate deal to raise FHA’s loan limits on Monday.
NAHB was part of a coalition of housing, real estate, and banking interests that lobbied hard to have the loan limits restored for all three government agencies. And last month, the U.S. Senate voted in favor of raising those limits. But the House of Representatives didn’t include the higher limits in its bill to fund federal agencies through next September. And there has been fierce opposition to increasing those limits again by conservative and Tea Party factions.
The House and Senate have until this Friday to reconcile their differences and pass a budget bill. However, the law includes a provision that would extend funding temporarily for many government programs through Dec. 16, which would allow Congress more time to determine funding levels.
The outcome of any vote over appropriations remains uncertain, especially at a time when Democrats and Republicans on the so-called supercommittee are reportedly far apart on how to slash $1.2 trillion from the federal budget over the next decade. And, on a small scale, the fate of FHA’s higher loan limits is equally up in the air. For one thing, the two ranking Republicans on the House Financial Services Committee—Alabama’s Spencer Bachus and Texas’ Jeb Hensarling—are against more government involvement in the secondary mortgage markets.
But if the government is prevented from meeting home buyer needs for mortgages, who will, asks Dietz. “We have seen little evidence yet that the private market is ready to step in.”
John Caulfield is senior editor for Builder magazine.