In 2008 when the housing bubble began to explode, taking the home mortgage market with it, then President George W Bush passed a bill known as “FHA Forward” which raised the FHA lending limits during the housing crisis in order to encourage home buyers to continue to purchase homes, even in higher priced areas. The revised lending limit for a single family home in most areas is $729,750.
FHA loans are generally utilized by borrowers who have low credit scores or who lack a sufficient down payment to qualify for a conventional mortgage. The government (meaning the taxpayers) insures the lender against the borrower’s default. Because the federally backed mortgage insurance is more expensive than most private mortgage insurers, only borrowers who cannot qualify for conventional financing seek FHA loans. FHA is also kinder to those who are self-employed (requiring only one year’s history in the new business) and to family members who purchase properties for other family members who have no income (conventional lenders consider this investment property; FHA will allow an owner-occupied loan in this situation).
These higher loan limits are set to expire on September 30th, bringing the maximum lending limit down to a meager $625,500. Like all members of the National Association of Realtors I received an email from NAR urging me to write my congresspeople and demand that these higher loan limits be extended or the entire housing recovery would be ruined. I have to say that I am not so sure that extending FHA loan limits is going to rescue the housing market.
In my view, the housing market exploded because years of outsourcing of American factories and intellect followed by an economic collapse resulted in a dearth of jobs and the consequent inability of many Americans to afford homes that had continued to grow in size and expense over the past twenty years. Encouraging more people to buy homes that they really can’t afford is not the way out of this mess.
Newer agents are bemoaning the “new” stringent lending regulations that are making it more difficult to qualify for homes, but those of us who have been in the real estate business for awhile realize that the lenders have simply gone back to the old days of requiring a down payment and sufficient income to qualify for a mortgage.
The American housing market has been on a binge of excess for a long time, and I’m afraid the only real way out of the housing crisis is a debt detox. Fueling this binge with more easy credit will only extend the problem and make it more difficult to truly heal the crisis.
“We want private capital to come back into the market,” the acting commissioner of the Federal Housing Administration, Carol Galante, told a House Financial Services subcommittee. “We support the expiration of the higher mortgage loan limits.”