FHA Loan Limit Increase Is Temporary?

December 5th, 2011

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Some things are permanent and some are temporary. The sand drawing in this picture is temporary, very temporary. The recent FHA loan limit increase that the National Association of Realtors (NAR) lobbied for, seems to be temporary. So what is all of the fuss over. For now, we have one extra month of getting loans done at the higher loan limit. That is a big deal? The NAR, however, said the loan limit increase is good for two years. Here is their announcement:

WASHINGTON (November 17, 2011) – The National Association of Realtors commends Congress for reinstating the loan limit formula and maximum cap for Federal Housing Administration-insured loans for two years.

“As the nation’s leading advocate for homeownership, we applaud members of Congress for restoring FHA’s previous loan limits, which will help reduce consumer cost burdens, stabilize local housing markets and allow qualified, creditworthy borrowers to access affordable mortgage financing,” said NAR President Moe Veissi, broker-owner of Veissi & Associates Inc., in Miami. “The reinstated loan limits will help provide much needed liquidity and stability to communities nationwide as tight credit restrictions continue to prevent some qualified buyers from becoming home owners and the housing market recovery remains fragile.”

The provision reinstates the FHA loan limits through 2013 at 125 percent of local area median home prices, up to a maximum of $729,750 in the highest cost markets.

NAR believes the reinstated loan limit formula and cap change will help make mortgages more affordable and accessible for hard-working, middle-class families throughout the country, not just wealthy individuals or those in costly markets. Nearly two-thirds of buyers who will be helped by the loan limits provision have incomes below $100,000.

“It’s a misconception that only wealthy borrowers benefit from the maximum cost loan limits; middle-class homebuyers living in all areas of the country deserve the same access to affordable mortgage financing and the same opportunity to achieve homeownership that homebuyers enjoy in the most affordable regions of the country,” said Veissi.

But, per this FHA memo below the loan limits for FHA are back to $729,750 from now through the end of the year. It looks like they have not guaranteed it will go past 12/31/11. The FHA memo is below:

Sent: Wednesday, November 23, 2011 12:33 PM
Subject: FHA Update

FHA Update:
On November 18, 2011, the President signed into law H.R. 2112, Consolidated and Further Continuing Appropriations Act 2012 (HR2112). Section 238 of HR 2112 re-establishes the FHA loan limit at the higher of the dollar limit in Section 203(b)(2) or the dollar limit prescribed in Section 202 of the Economic Stimulus Act of 2008 for FHA mortgages.

Therefore, effective for all mortgages with a case number assigned on, or after, November 18, 2011 through December 31, 2011, the higher loan limits referenced in Mortgagee letter 10-40 ($729,750) shall be in effect.

The Department will be issuing a Mortgagee Letter by mid-next week that will include more detailed guidance and applicable updated loan limit tables for 2012.

Hmmmm, confused? I am. I’ll see if I can find out more answers, and report back before the end of the year, to see if FHA clarifies this. I was told by someone who follows all this, the below:

“Two years would be good. Everyone is still waiting on the official mortgagee letter from FHA, when that is sent out, its official. No lender has rolled out the higher loan limits for 2012 yet until the FHA mortgagee letter says when they’ll start allowing FHA case numbers at the higher loan limits.”

This may sound like paranoia, but the VA (Veteran’s Administration) rolled out a lower VA Funding Fee. And then weeks later took it back! So would FHA say they are going to allow the higher loan limits for 2 years, and then not allow it?

I know it seems like a stretch, but if I told you in 2004 that an inflated national real estate market would help to sink the economy, you’d call me crazy. In 2007 if I said that Merrill Lynch and Bear Sterns would close, you would have me committed. If I said Fannie Mae would go broke and be taken into federal bankruptcy receivership, you’d….well, you get the point. Anything can happen.

This may simply be an administrative delay and FHA will soon announce procedures for the increased loan amounts. Or not. It’s into December, and 2012 is right around the corner. I will report back again ASAP.

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Brian Martucci is a loan officer for Capital Bank Home Loans, a division of Capital Bank, N.A. He has been in the mortgage industry since 1986 and has served in a number of roles, including loan processor, loan officer, mortgage broker, branch manager, and vice president. Brian Martucci – NMLS# 185421. His opinions do not necessarily reflect the opinions and beliefs of Capital Bank Home Loans or Capital Bank. Capital Bank, N.A.- NMLS# 401599. Click here for the Capital Bank, N.A. “Privacy Policy”.

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