Certain GOP Pols, Industry Adamant Against Changes to FHA Floor

By Brian Collins

A legislative proposal to eliminate the $271,050 loan limit “floor” on Federal Housing Administration-insured loans ran into strong opposition at a congressional hearing Wednesday. The housing industry is already bracing for Congress to reduce the maximum loan limit on October 1 from $729,750 in high cost areas to $625,000, according to Mortgage Bankers Association chairman Michael Berman.  “It would also be a mistake to lower the limits in low cost areas where FHA does most of its business,” Berman told members of the House Financial Services subcommittee on housing. The FHA reform proposal would lower the FHA loan limit floor to 125% of the median home price in each county.  The median house price in the U.S. is now $173,000. Home prices have fallen across the nation for the past few years and the FHA floor is at least 60% higher than the national median existing price, according to Federal Financial Analytics managing partner Basil Petrou. At this level, the loan limit floor is permitting FHA to finance “borrowers with the highest incomes in local areas and driving out private capital,” Petrou testified.