U.S. FHA to lower loan limits in 2014

Reuters

WASHINGTON, Dec 6 (Reuters) - The U.S. Federal HousingAdministration will scale back the size of loans it backs to amaximum $625,500 at the beginning of 2014 to reduce its share ofthe U.S. mortgage market, the agency said on Friday.

Currently, the FHA's limits that vary by region, from$271,050 up to $729,750 in the country's most expensive housingmarkets. The FHA's move brings it partly in line withtaxpayer-owned mortgage financiers Fannie Mae andFreddie Mac, which use a $417,000 cap in most areasand have an upper limit of $625,500.

"As the housing market continues its recovery, it isimportant for FHA to evaluate the role we need to play," CarolGalante, FHA Commissioner, said in a statement. "Implementinglower loan limits is an important and appropriate step asprivate capital returns to portions of the market."

Those in favor of lower limits say the government should notbe helping borrowers at the high end of the real-estate market.The FHA became a major backer of new mortgage financing duringthe housing crisis when banks became reluctant to lend.

The reductions will impact buyers in about 650 countiesacross the country with relatively high home prices.

Loan limits are based on median home prices in each county,and they do not go any lower than $271,050. That floor willremain unchanged, the FHA said.

The FHA, which is mainly funded through insurance premiumsit brings in, backed about a third of loans used to purchasehomes last year.

In September, the FHA said it needed to draw $1.7 billion incash from the U.S. Treasury to help cover losses from troubledloans, marking the first time in its 79-year history that it hasneeded aid.

With an FHA loan, buyers can put down as little as 3.5percent. The FHA, which does not make loans, provides mortgageinsurance to borrowers without enough of a down payment toqualify for prime loans.

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