Higher loan limit makes FHA popular again

Something is happening in the residential real estate market — movement. It’s too soon to say that the tide has turned, but it sure is beginning to feel that way.

Part of the reason a growing number of prospective buyers are acting and dismissing reports of doom and gloom is because there has been a revival in an all but forgotten housing mainstay — FHA-insured loans.

FHA loan limits have nearly doubled. And, in an era of tighter loan qualification rules, FHA loans are a blessing for buyers with little money for a down payment.

Tens of thousands of California families could be eligible this year to purchase or refinance homes using affordable, government-backed mortgages.

The temporary higher loan limit — as high as $729,750 — is a shot in the arm for communities trying to sustain property values, bringing much-needed liquidity to the mortgage market, while helping many current home owners who may desperately need to refinance.

Overall, the change in the loan limit will help provide economic stability to America’s communities and give nearly 240,000 additional home owners and home buyers a safer, more affordable mortgage alternative.

The maximum amount of $729,750 is available in extremely high-cost metropolitan areas, such as the counties of Los Angeles, San Francisco, Orange and Santa Barbara.

Previously, FHA’s loan limits in those high-cost areas were capped at $362,790. We’ll see how many people can actually take advantage of the higher limit, but it certainly is enough of a difference to make prospective buyers reconsider their options. FHA loans were originally intended to help first-time home buyers, so the down-payment requirements are very flexible — as little as 3 percent.

However, the FHA does not insure nontraditional loans such as “payment option” adjustable-rate loans.

Before they make a loan, the agency also requires verification of income and assets and a full home appraisal. As conventional sources of mortgage credit have been contracting, FHA has been filling the void, especially with a focus on traditional 30-year, fixed-rate mortgages.

Traditional loans help home owners avoid and escape the risks associated with the exotic subprime mortgage products which resulted in rising default and foreclosure rates.

As of January 2009 the loan limits are supposed to revert back to their old levels. However, Congress may extend them well into the future, but some buyers do not want to take the chance of missing an opportunity. Is the worst past?

Only time will tell, but the movement Realtors report suggests people are taking notice, testing the water and quietly returning to the residential resale market.

FHA loosens rules to aid borrowers

Federal regulators on April 9 announced that they will loosen rules underpinning the largest U.S. homeowner aid program in order to help more borrowers who have seen their home drop in value and are facing foreclosure, a senior administration official said. Brian Montgomery, head of the Federal Housing Administration, told lawmakers that his program would encourage lenders to erase some of a failing loan amount in order to receive a government guarantee of timely payments.

“We will permit and encourage lenders to voluntarily write down outstanding principal,” Montgomery told the House Financial Services Committee, in his written statement. Montgomery stressed that he wanted to preserve the self-funding structure of FHA and not put taxpayers on the hook for failing loans.

Unlike other proposals, the plan outlined by Montgomery would not require a big cash infusion to get started.

“This new administrative change will ensure the integrity of the FHA insurance fund over the long-term, protect the taxpayer, and guarantee that FHA will be around to help struggling homeowners in the future,” he said.

Washington policymakers have faced increasing pressure to help staunch increasing foreclosures that are threatening to drive the U.S. economy into a deep recession.

The Federal Housing Administration is a Depression-era program that underwrites a borrower’s monthly mortgage payments and so helps borrowers win more favorable loan terms.

The program was conceived to help low-income borrowers, but policymakers have lately focused on its potential to help today’s troubled borrowers who are at risk of losing their home.

The Southland Regional Association of Realtors is a local trade serving the San Fernando and Santa Clarita valleys. SRAR is one of the largest local associations in the nation.