Mission Compromised
Pushing back are mortgage insurers, the American Bankers Association and others who say it's time for the government to step away from the mortgage business. Joining them is the National Community Reinvestment Coalition, housing advocates who fret that the FHA's mission is being compromised at the expense of working-class Americans.
NCRC President John Taylor pointed to a Congressional Budget Office study that found that higher limits would benefit only the wealthiest 5 percent of U.S. households.
"I don't see that they're gaining anything from this other than reducing opportunity for working-class, blue-collar people," Taylor said.
The proposal on the table would also raise the cost of high-value Fannie Mae and Freddie Mac loans, pushing even more borrowers to the less-expensive FHA program, Taylor said.
Subprime Roots
The loan limit debate has its origins in the 2008 credit crunch, when failing subprime loans led to millions of foreclosures and drove down home prices nationwide. As banks grew reluctant to lend, lawmakers sought to inject capital into the system by increasing the value of mortgages that the FHA, Fannie Mae and Freddie Mac could guarantee. Combined, the three currently back more than 90 percent of home mortgages.
Larger loans that don't have government backing are known as jumbo or non-conforming mortgages. They can be difficult to get, tend to carry higher interest rates and sometimes require higher downpayments than conforming loans.
The National Association of Homebuilders has estimated that 5.3 million homes were caught in the Oct. 1 shift. Nearly 670 counties saw their conforming loan limits decline, according to the NAR.
"We have a convoluted policy in America where the most financially qualified individuals are being forced to pay higher rates because they're outside the loan limits," said Lawrence Yun, NAR's chief economist.