Lower loan limits coming from FHA

The Federal Housing Administration will lower its loan limit on Sept. 30, a move that some housing activists say will make it tougher to get government-backed home financing and drive down prices.

Many lenders are already using the lower FHA loan limits because it can take a month to go through the qualifying and loan origination process, Re/Max Vice President Shaun White said Thursday from Denver.

The common misperception is that it only applies to high-end homes, he said.

FHA loan limits, a subject of debate on Capitol Hill for the last two years, were raised nationally from $417,000 to $625,000 in February 2009 and were extended last year until Oct. 1, barring action from Congress.

The limit was raised from 115 percent of each county's median home price to 125 percent of the median, and is now coming back to 115 percent, White said.

That's an average reduction of $68,000, making an estimated 5 million homes ineligible for government sponsored-enterprise financing, he said. In Clark County, the loan limit would be reduced from $400,000 to $287,500.

"That means sellers would price their homes lower to attract a broader group of buyers who qualify for FHA," White said. "If you're a buyer in the market, if you can qualify for FHA, you're going to look at lower-priced homes. That'll drive the average price down."

FHA will reduce loan limits in America's highest-cost metropolitan areas while limits would remain unchanged in most other parts of the nation.

Lower FHA loan limits will affect less than 5 percent of the local market, Greater Las Vegas Association of Realtors President Paul Bell said Friday. Of nearly 6,000 FHA-insured closings in the Las Vegas Valley this year, only 246 units sold for more than $287,500, he said.

Some conventional mortgage loans will come out that will mitigate any problems with FHA financing, Bell said. Many of them will require 4 percent to 5 percent down payment and may not carry private mortgage insurance because banks will keep the loans in their in-house portfolio, he said.

Chris Biaggi, president of All Western Mortgage in Las Vegas, said he doesn't think the change in loan limits will affect his business much. The average home loan in Clark County is $150,000, he said.

"I don't think it's going to affect too many potential homebuyers. We don't see a lot of $380,000 FHA loans. We just don't see them," Biaggi said. "Conventional lending goes to $417,000. They've loosened their guidelines and they'll probably take the place of FHA (loans) over $287,500."

FHA mortgage insurance helps people who can't afford a big down payment qualify for mortgage financing, said Zach Lowe, spokesman for the Washington, D.C.-based Coalition for Sensible Housing Policy.

In 2008, the FHA was insuring home loans up to $729,000 nationally, or 125 percent of area median home prices. The median home price in Clark County was $320,000. Based on the formula, FHA could insure homes up to $400,000.

Now, the median home price in Clark County is $165,000, a 48 percent decrease, statistics from the U.S. Department of Housing and Urban Development show. But because the FHA loan levels were frozen, the FHA can still insure home loans up to $400,000.

"That's not 125 percent, it's 242 percent," Lowe said. "So the FHA is able to insure homes way beyond the original intent at the risk of the taxpayer."

HUD showed the 2010 average home price at $151,353 in Nevada, a 30 percent decrease from 2008, with 12 of 17 counties experiencing a decline in price.

Home Builders Research reported a median Las Vegas existing-home price of $109,900 in July, compared with $123,400 in the same month a year ago.

Contact reporter Hubble Smith at hsmith@reviewjournal.com or 702-383-0491.