Earlier this year, the Economic Stimulus Act of 2008 was enacted by congress and the Bush Administration, in an effort to stimulate business investment and attempt to avert impending crisis and recession. Needless to say, their efforts haven't seen success so far, for reasons everyone is familiar with. What you probably remember about the act is that you received a $300-$600 rebate check after filing your taxes, but what you may not recall is that the act also had a profound effect on the ceiling for FHA-insured home loans.
Before March 6, 2008, the limit for FHA loans was $362,790. That meant that the FHA could not insure loans above that price. As part of the economic stimulus package (referred to as the "FHA Forward" program) however, congress authorized the FHA (Federal Housing Administration) to increase their maximum loan limit from $362,790, to between $271,050 and $729,750, depending on location and the size of the home. For instance, the FHA will now insure mortgages on single-family homes in Denver as high as $406,250. The most populous areas, and areas with the highest costs of living such as New York City and Los Angeles have seen their limits increased to $729,750.
As the availability of private mortgage insurance and other options increased early this decade, FHA loans lost popularity, but the past several months have seen a resurgence in FHA loans. With some major sub-prime lenders recently on the edge of default, banks have become increasingly hesitant to (and in some cases just can't afford to) offer 100% mortgage loans, and FHA loans have become a common alternative for consumers who otherwise would not be able to acquire conventional financing for their homes.
The FHA was created as part of the National Housing Act of 1934 (subsequent to the creation of the Securities and Exchange Commission as part of the New Deal), as a reaction to the collapse of the banking system in the 1930's. Its purpose was to counteract the vast decline in homeownership during the Great Depression. It's not surprising then that consumers are looking to the FHA for assistance again, as we enter what is considered by most to be the greatest economic threat the U.S. has faced in nearly eight decades.
It is important to make the distinction that the FHA does not originate loans, but rather insures lenders against loss, in the event that a borrower becomes unable to meet the terms of their loan. That being the case, all FHA loans are not created equal. Different lenders offer various terms and incentives, and for that reason consumers should seriously consider meeting with a Certified Mortgage Planner (not the same as a broker) who can help them in compare offers from the lender or lenders who meet their personal criteria.
With the latest polls showing continuous increase in pessimism regarding the economy, and decrease in consumer confidence, it's no surprise that we're returning in droves to some of the same institutions that helped us during the Great Depression. It not possible to predict with certainty what will happen over the next several years, but at least we can take comfort in something this time that we couldn't last time: we've seen it all before. |
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