“As the housing market continues its recovery, it is important for FHA to evaluate the role we need to play,” Carol Galante, FHA Commissioner, said in a statement. “Implementing lower loan limits is an important and appropriate step as private capital returns to portions of the market.” Those in favor of lower limits say the government should not be helping borrowers at the high end of the real-estate market. The FHA became a major backer of new mortgage financing during the housing crisis when banks became reluctant to lend.
The reductions will impact buyers in about 650 counties across the country with relatively high home prices. Loan limits are based on median home prices in each county, and they do not go any lower than $271,050. That floor will remain unchanged, the FHA said.
The FHA, which is mainly funded through insurance premiums it brings in, backed about a third of loans used to purchase homes last year. In September, the FHA said it needed to draw $1.7 billion in cash from the U.S. Treasury to help cover losses from troubled loans, marking the first time in its 79-year history that it has needed aid. With an FHA loan, buyers can put down as little as 3.5 percent. The FHA, which does not make loans, provides mortgage insurance to borrowers without enough of a down payment to qualify for prime loans.