*One-year Increase in FHA's Ability to Guarantee More Loans
Currently borrowers in many parts of the country are cut off from FHA financing. This revision would boost FHA loan limits to 125% of an area's median home price (but not to exceed $729,750) for 2008. This will provide needed mortgage financing to borrowers in markets where such funds are currently unavailable or limited.
According to a 2007 GAO report, during the recent housing boom (where the number of nationwide loans rose), the total number of FHA loans fell from 763,584 in 2001 to 286,470 in 2005. "FHA's market share in terms of numbers of loans fell from 19 percent in 1996 to 6 percent in 2005, with almost all of the decline occurring since 2001." This will help FHA return to its traditional role in housing finance.
*Temporary Increase in GSE Conforming Loan Limits
Similarly, the stimulus package will provide for a temporary increase for the GSEs conforming loan limits to match the new levels established for the FHA. Currently Fannie Mae and Freddie Mac are only able to purchase loans under $417,000. Loans with balances above that limit have fewer buyers and are significantly more expensive and difficult to finance.
Even when financial institutions are willing to make these loans, because there is no secondary market for them, they cannot sell the loans and fund new ones. By permitting the GSEs to buy these loans, this change would provide vital liquidity to mortgage markets where funds are currently unavailable or limited.
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