Premiums

He noted that FHA loan guarantees are financed with premiums the agency charges to borrowers. Although the agency's capital reserves are at a historic low, it hasn't required a government bailout, unlike Fannie Mae and Freddie Mac, which have drawn about $175 billion from the Treasury Department since they were taken under conservatorship in 2008.

"We understand the ideological fight. But right now we need to look at the practical situation," Yun said. "The practical reality is we need to get housing to recover."

Complicating the debate is a law that prohibits the FHA itself from lowering limits. Currently, most limits are calculated using 2008 home values, thanks to a provision in the economic stimulus law passed in the early months of the Obama administration. If home prices fall, the FHA formula can't take that decline into account.

As a result, the agency currently insures loans above average home prices, particularly in high-cost areas that have seen steep declines. Some of those areas include resort communities.

Median Prices

In San Miguel County, the median home price is $416,000, according to the Department of Housing and Urban Development, down from $770,000 in 2008. That means the FHA guarantees loans in the area for 150 percent of the current median, and would grow to nearly 175 percent under higher limits.

President Barack Obama and many in Congress have called for government to shrink its role in supporting the mortgage market. HUD Secretary Shaun Donovan said in July that letting higher loan limits expire would have no "major impact" on the market.

Given the administration's position, many housing lobbyists thought the push for higher limits had petered out. However, on Oct. 20, the Senate restored the higher cap in a late-night vote of 60-31, adding it to a spending bill for a batch of federal agencies.

The amendment from senators Menendez and Johnny Isakson, a Georgia Republican, restored the $729,750 maximum in high-cost areas and imposed a new fee on those high-value loans backed by Fannie Mae and Freddie Mac. The 15-basis-point fee would cover any additional risk to taxpayers, Menendez said.