Congress passed and President Obama signed into law on November 18 a bill to reinstate the Federal Housing Administration (FHA) loan limit in high-cost areas through 2013. In Santa Clara County, this would mean the maximum size of mortgages FHA can insure will be raised back up to $729,750.

The higher Fannie Mae, Freddie Mac, and FHA conforming loan limits of $729,750 expired September 30 and were subsequently reduced to $625,500. Loan limits for loans backed by Fannie Mae and Freddie Mac were not increased and remain at the reduced level.

The Silicon Valley Association of REALTORS® and its state and national partner associations have long advocated for Congress to reinstate all the loan limits permanently. “We are pleased that Congress agreed to reinstate the FHA loan limits, though we are disappointed that our lawmakers did not reinstate the higher loan limits for Fannie Mae and Freddie Mac backed loans, as well,” said Gene Lentz, president of the Silicon Valley Association of REALTORS®. “The reinstated FHA loan limits will allow qualified, creditworthy borrowers access to affordable mortgage financing.”

FHA provides mortgage insurance to borrowers without enough of a down payment to qualify for prime loans. With an FHA loan, home buyers can put down as little as 3.5 percent on a mortgage loan.

The REALTORS® believe continued a government role in housing financing will ensure stability in mortgage markets and enable home buyers in high-cost areas to refinance and obtain financing for new home purchases more easily. The conforming loan limit determines the maximum size of a mortgage that government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac can buy or guarantee. Non-conforming or jumbo loans typically carry higher mortgage interest rates than conforming loans, increasing monthly payments and hampering the ability of families in California to purchase homes by making them less affordable.

The GSEs and FHA currently back 90 percent of new home loans. The Obama administration and some lawmakers want to reduce government’s role in the mortgage business and have said the lowering of loan limits is a first step to prompting private capital to return to the market.

In addition to extending the FHA-insured mortgages, the new law provides for a short-term extension of the National Flood Insurance Program (NFIP) through Dec. 16, 2011.  REALTORS® want to ensure that millions of home and business owners across the country have access to affordable flood insurance and had strongly urged Congress to work on a five-year NFIP reauthorization bill to provide certainty and avoid further disruption to real estate markets.

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