On October 1, 2011 FHA will implement new single family loan limits as specified in the Housing & Economic Recovery Act of 2008 (HERA). As a result, FHA loan limits will be reduced in approximately 669 counties across the country, out of a total of 3,334 jurisdictions in which FHA insures home loans. The Housing and Economic Recovery Act of 2008 (HERA) was enacted on July 30, 2008 and designed primarily to address the subprime mortgage crisis. It authorized the FHA to guarantee up to $300 billion in new 30-year fixed rate mortgages for subprime borrowers if lenders write-down principal loan balances to 90 percent of current appraisal value. It was intended to restore confidence in Fannie Mae and Freddie Mac by strengthening regulations and injecting capital into the two large U.S. suppliers of mortgage funding. States were authorized to refinance subprime loans using mortgage revenue bonds.
Until three years ago, FHA mortgage limits were set at 95% of the median price house price for each particular area. But the maximum could not exceed 87% of the ceiling placed on the government sponsored enterprises or go lower than 48% of that ceiling. In February 2008, however, Congress changed the formula in an effort to mitigate the economic downturn by temporarily setting the limit at 125% of the area median but not to exceed 175% of the limit of $417,000. Five months later, though, lawmakers changed the rules again when they passed the recovery act, this time by assigning the task of setting the conforming loan limit to the newly created FHFA.
Many mortgage professionals have voiced their concerns in regards to the lower limits. Homeowners in high cost regions will be unable to refinance with FHA as the new limit will be $625,500. The pending change in federal loan limits will have a much larger impact on FHA home loans than on those purchased or securitized by either Fannie Mae or Freddie Mac. These loan limits are crucial in high-cost areas such as San Francisco, Los Angeles, New York and New Jersey. Click here to find the FHA limits on counties in Illinois.
Should you have any questions on how the new limits for FHA could affect you, call the professionals at Tammy Mitchell Hines & Company and let them take care of all your real estate needs.
618-281-HOME (4663) or 618-939-HOME (4663)