U.S. government to begin scaling back size of home mortgages it buys, insures Oct. 1 as FHA, Fannie Mae, Freddie Mac roll back limits on loans that hit all-time high after 2008 financial crisis

Andrew Rogers

LOS ANGELES , September 15, 2011 (Industry Intelligence) – The U.S. government will start scaling back the size of home mortgages it purchases or insures Oct. 1 when limits on loans backed by the Federal Housing Administration and Fannie Mae and Freddie Mac will roll back from the all-time highs set in the wake of the 2008 financial crisis, Bloomberg reported Sept. 12.

The cap will fall to US$625,500 from $729,750 in high-cost areas.

Real estate agents and homebuilders are pushing for a last-minute reprieve despite political momentum firmly against them, setting up a new debate in Washington about whether scaling back government loan backing will destabilize the currently weakened market.

The NAR and the National Association of Homebuilders, which has members including Pulte Group Inc., Toll Brothers Inc., and KB Home, have found some lawmakers who support their cause. Bipartisan legislation has been introduced in both houses of the U.S. Congress that would continue the present loan limits for two additional years.

Private lenders cannot be relied on to provide reasonably priced, long-term, fixed-rate mortgages when companies have been reluctant over the past few years, a letter drafted by sponsors of a House bill wrote.

Some supports of the change say the number of loans affected would be fairly small. A study conducted this year by the FHA found that only 3% of nearly 1.24 million loans it insured in 2010 and 2% of the 284,000 loans it insured in the first quarter of 2011 would not have qualified if the lower limits on loans had been in effect.

Buyers in 669 counties with relatively high home prices, out of the nation’s 3,334 total counties, will be affected by the reductions, according to the FHA.

The primary source of this article is Bloomberg, New York, New York, on Sept. 12, 2011.

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