Lawmakers to Restore Higher FHA Loan Limits - Developments - WSJ
The move by Congress will give borrowers seeking loans between $625,500 and $729,750 in pricey markets two options. They can take out “jumbo” loans that carry higher interest rates than those backed by Fannie and Freddie and require down payments of at least 20%. Or, they can take out an FHA loan, which allows for lower down payments but charges insurance premiums that add to borrowers’ costs.
Housing industry lobbyists pushed for Congress to reinstate the higher limits for Fannie, Freddie and FHA, citing concerns that any steps to raise borrowing costs might be too much for fragile housing markets to bear. Another Republican criticism of the action is that it would primarily benefit affluent neighborhoods.
“This means that taxpayers will be subsidizing the purchase of expensive homes by wealthy buyers,” said Sen. Richard Shelby (R., Ala.).
However, Sen. Robert Menendez (D., N.J.) said that restoring the loan limits will benefit the housing market at a time when it is weak. Doing so, he said, “won’t cost taxpayers a dime” and will benefit the housing market in many other parts of the country besides those cities.
The move by Congress came after an annual independent audit found the FHA’s cash reserves are now so depleted that there is close to 50% chance the agency could run out of money and require a taxpayer bailout in the next year.