I received an email this week from a Senior Loan Officer informing me of a possible decrease to FHA funding limits if Congress fails to act.
The email read: “Barring Congressional action, FHA loan limits will revert back to loan limits determined under the Housing and Economic Recovery Act for loans insured after Oct 1, 2011.
In Washoe county this means that the base loan limit for FHA loans will decline from 403,750.00 to 325,450.00.
To read the entire report on the potential changes you can click on the link: http://portal.hud.gov/hudportal/documents/huddoc?id=fhaloanlmhera.pdf”
My initial reaction to reading this was “Uh oh, more downward pressure on home prices.” But what kind of impact will this really have?
I took a look at sales since the first of the year and found that 33 percent were financed via FHA loans. If we include VA loans in the mix, that number increases 38 percent of all sales. On the surface that appears to be a large segment of sales.
However, next I looked at all the sales that sold for more than $325,450 and that were finance via FHA loans. I found only 0.87 percent of sales since January 1st meeting those criteria. Including VA funded loans in the mix brought the proportion up to 1.1 percent.
In real numbers that 0.87 percent equates to 29 sales (since Jan. 1) that would not have occurred. That doesn’t seem like much of an impact. And, in actuality, perhaps some of these 29 sales might still have occurred by means of the home buyer simply increasing his or her down payment to the extent of making the loan amount conform to the lower FHA funding limit.
What are your thoughts on the effects of FHA loan limits reverting to $325,450? Am I looking at this too simplistically? Anything I’m missing. Would love to hear your thoughts.
CommercialLender
These limits and deadline of 9/30 have been known for a while. The limits apply not just to FHA, but they are also the line of demarcation for jumbo/conforming loans for Fannie Mae and Freddie Mac. So, anyone needing debt above those levels will have to either write a bigger check for the downpayment to meet the conforming limits or they will need to obtain a loan in the jumbo category. My understanding is that jumbos are available, but the rates are 50 or so bps more in rate and may also have tighter underwriting credit standards.
In higher cost areas such as the Bay Area, the limits go from $729K or so down to $625K or so, or around $100K. In many markets of the Bay Area, loans are needed at or above this level. So basically in the higher end, many buyers will need 80% of $100K or $80K more downpayment, or they’ll pay 50 bps or so more in rate. Either represents downward pressure in pricing, absent other inputs. Given it takes 45 or so days to close, this window is closing as we ‘speak’.
Correct me if wrong, SFR lenders. While you do, throw in current rates and underwriting standards for the group for conforming and jumbos.
inclinejj
If you are using jumbo financing you should at least have 20%-25% Hard Cash into the deal with 6 months of reserves.
The SF area, San Mateo, and Parts of Santa Clara benefit from the high pay workforce in these areas. SF is a financial hub, San Mateo County has Oracle and Bio-Tech, Santa Clara has Silicon Valley.
These areas have fallen but no where as bad as the East Bay Area.
Underwriting Standards, DNA sample, Urine Sample, and your first born male child!
Carole
OMG!
Can the NRA really allow this to happen?
Surely with that $25 million a year the NRA spends on “governmental relations” they will fix this.
baggin it
Why should FHA (aka the federal govt) underwrite any loans greater than $325k in an area where the median hovers at $150k?
I can hear the teabaggers now, “take your govt hands off my FHA loan, dammit!”
Anonymous Coward
I’ll echo what “bagging it” says. FHA is a form of federal assistance. If you want to buy a Reno home above the 90%-percentile of prices, why should you be given federal assistance to get the loan? I know it’s apocryphal to say it on a real estate site, but I think there’s already far too much in the way of government incentives to get a loan for a house. We don’t need the federal government insuring the top 10% of housing sales as well.
Cornish
The FHA, aka the federal government, already essentially underwrites ALL of the loans it finances. The down payment required is a whopping 3.5% and the debtor can finance the closing costs. So to buy a median house at $150K, the debtor has to come up with all of $5,250. To buy a $300K house, the debtor has to come up with a staggering $10,500.
At least the FHA does require documentation. That’s pretty un-American isn’t it? I mean to make the debtor demonstrate that he actually has the ability to repay the loan? What ever happened to the Tan Man and his no-doc liar loans? Where have you gone Angelo Mozilo, our nation turns its lonely eyes to you.
inclinejj
We never did FHA cause in San Mateo county you could only do like Shelter Creek or Peninsula Place Condo’s in San Bruno.
Going and getting approved FHA for 1 bedroom condo’s never made any sense to me.
I hear FHA is pretty much filling the void for sub=prime and Alt-A right now.
I wish an FHA lender could come on here and tells us how they work
CommercialLender
Bag It,
Huh? The Tea Party does not want FHA loans, even the Republican party does not want this stuff. Its been the R’s for decades railing against the CRA, Fannie, Freddie, and HUD. Fannie and Freddie are gov’t entities, de facto, and the conservatives are the ones saying to shut these down. Look at the Democratic party and Barney Frank, et. al. for these excesses, indeed the FHA and Fannie were created by FDR. But your other premise, namely insuring loans above the median level, is illogical for taxpayers to do, and I am in agreement.
baggin it
CL,
The implication of what you write appears to be that the Republicans are fiscal conservatives, and the Democrats are responsible for all the bad, inefficient govt largesse extant today. As you state, “Look at the Democratic party and Barney Frank, et. al. for these excesses….”
Well, in answer I humbly submit the following, from Barry Ritholz’s site”
[under the heading: Ten Things Politicians Want You to Believe]
9. Republicans Are Fiscal Conservatives
From 1946-2010:
Democratic President
* Total Years: 29
* Average Inflation Adjusted Deficit: $150.73 billion
Republican President
* Total Years: 36
* Average Inflation Adjusted Deficit: $202.28 billion
Bottom line: they all suck and they all are bought. Don’t let them trap you into thinking that one side cares any more at all about your interests (or the country’s) than the other…. I would only urge anyone eligible to vote to vote against every incumbent, whatever their stripe….
Pearson
“Reagan proved that deficits don’t matter.”
Dick Cheney, Vice President of the United States in the Administration of President George W. Bush
“The lesson we have learned is that deficits have little or no long-term economic impacts.”
William A. Niskanen, Chairman, Counsel of Economic Advisors to President Ronald Reagan
FHA Loan limits extended until December 31, 2011 | RRB Home
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