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Despite an industry-wide legislative and grassroots push to stave off a reduction in the size of federally approved home loan guarantees, Congress failed to act, leaving millions of potential home buyers with the prospect of facing higher mortgage interest rates and downpayment costs and other less favorable loan terms.
As of Oct. 1, the conforming loan limits in high-cost areas for Fannie Mae, Freddie Mac and the Federal Housing Administration (FHA) reverted to the lower levels established under the Housing and Economic Recovery Act of 2008.
“With the housing market struggling to regain its footing, a drop in mortgage loan limits could not come at a worse time,” said NAHB Chairman Bob Nielsen.
“This will depress home values, increase foreclosures, impede job growth and jeopardize the tenuous economic recovery,” he said. “That is why NAHB will continue to lead the charge to reinstate the expiring loan limits.”
As a result of the failure by Congress to address this issue, the national ceiling for mortgages securitized by Fannie Mae and Freddie Mac or insured by the FHA has dropped from $729,750 to $625,500 and the formula for establishing area loan limits is now more restrictive, producing decreases for areas in addition to those currently bound by the national ceiling.
Loan limits are based on a percentage of median area home prices.
As the result of reverting to 2008 loan limits, millions of homes will be more difficult to finance when they are sold, according to a recent NAHB study.
While only a minority of counties in the nation have been affected, these areas represent large concentrations of homes and population.
The counties affected by the changes in the FHA limits contain nearly 60% of all owner-occupied homes; those affected by the Fannie-Freddie changes contain nearly 30% of all owner-occupied homes.
Bipartisan legislation to increase the amount of federal home loan guarantees to their pre-Oct. 1 levels is still pending in both chambers of Congress, and NAHB will continue to work with leaders in both parties to enact it.
“With credit conditions extremely tight for home builders and home buyers, reducing the loan limits only exacerbates the current situation and will prevent many creditworthy buyers from being able to purchase a home,” said Nielsen. “Congress must act quickly to rectify this situation.”
For more information, email Scott Meyer at NAHB, or call him at 800-368-5242 x8144.