Government Might No Longer Guarantee Or Buy Mortgages Over $625,500

Legislators in both the House and Senate are pushing a bill which will extend until 2013 a temporary measure allowing government-sponsored enterprises and the FHA to guarantee or buy mortgages worth as much as $729,750.  The original loan limit was $625,500 which was increased in 2008 when the country was hit by the foreclosure crisis; but if the expanded loan limit measure is not extended, it could expire by the end of the year.

The Mortgage Bankers Association immediately supported both the House and Senate bills, and is lobbying Congress to act quickly. The trade group’s CEO David Stevens said uncertainty over where the conforming loan limits will land is already impacting lenders’ ability to guarantee lower interest rates for potential homebuyers.

“This bill is consistent with MBA’s policy that the loan limits should be allowed to fall back to the lower levels once the housing market stabilizes,” Stevens said. “Given the slowdown in the housing recovery, we have concerns whether this is the right time to add another stress to the market.”

If the loan limit is not expanded, homebuyers purchasing properties worth more than $625,500 could be forced into jumbo mortgages with higher interest rates and larger down payment requirements.  Areas with home prices easily exceeding half a million dollars could be hit hardest by restrictions on the loan amount which the government can guarantee.