The Los Angeles Times reported today that the higher loan limits may turn the FHA into a key financing as qualified borrowers go looking for funds to purchase their new homes. Utlimately, a compromise was put in place to satisfy House Republicans who expressed concerns about Fannie and Freddie.
[Congress] raised maximum loan limits for the Federal Housing Administration while leaving loan ceilings untouched for Fannie Mae and Freddie Mac. In effect, this may make FHA the go-to financing option for borrowers needing loans up to $729,750 with down payments as low as 3.5% in high-cost areas of California, the District of Columbia, New York, New Jersey and scattered counties in other states including Massachusetts, Florida and North Carolina. Fannie Mae- and Freddie Mac-eligible loans in those areas, meanwhile, stay capped at $625,500.
This action appears to leave the door open for additional action on reforming Fannie and Freddie, while at the same time weakening their leverage by reducing the access of certain borrowers to Fannie and Freddie as compared to FHA.
The goal — lobbied aggressively by realty and home-building groups — was to inject needed oomph into home sales. But Republicans in the House balked at doing anything that might prolong the existence of Fannie Mae and Freddie Mac, both the targets of scathing criticism for their multibillion-dollar costs to taxpayers and big bonuses for top executives.
What ultimately emerged from the legislative scrum was the compromise penalizing Fannie Mae and Freddie Mac, while boosting FHA. House Republicans weren't enthusiastic about helping the FHA either — the agency faces its own financial challenges — but unlike Fannie and Freddie, the FHA is subject to congressional appropriations and closer oversight. Republican critics held their noses and voted for the plan.
Stay tuned for more developments in reform of federal housing finance programs.
