Following the mortgage loan limit increases of Fannie Mae and Freddie Mac, the U.S. Department of Housing and Urban Development has begun insuring larger loans as of Jan. 1, 2000.

The limits for Federal Housing Administration loans has increased roughly 5% for 2000 to $121,296 for homes located in relatively low-priced areas, and $219,849 for homes located in more expensive areas. The limits increase annually to accommodate for the increase in housing prices.

"[HUD] uses a sophisticated analysis of a number of estimate the median home sale price in the particular region and they index it off of that," said HUD spokesman Chris Walz. "If things are going up in a metropolitan area, it will be reflected in the increases; if they're staying the same or somewhat stagnant, it will be reflected there as well."

Areas such as San Diego, San Francisco, and San Jose, Calif., along with the New York metropolitan area and the Cleveland area will benefit from the higher loan amount, which is 87% of the current agency limit of $252,700. However, most areas will only be eligible for the lesser amount, which is 48% of the agency limit.

Alaska, Hawaii, Guam, and the U.S. Virgin Islands will see their limit increase to $329,774. Limits have also increased for multifamily homes.

The number of additional people expected to benefit from the annual limit increase has not been announced, though economists predict that there will be a minimal increase in the number of borrowers, because the limit only reflects the jump in the cost of housing.

"It could benefit areas where house prices are increasing by less than the average, and in places where prices are rising more than the average it may not be sufficient to add additional homebuyers," said Mortgage Bankers Association of America economist Brian Carey.

Subscribe Now

Access to a full range of industry content, analysis and expert commentary.

30-Day Free Trial

No credit card required. Access coverage of the securitization marketplace, including breaking news updated throughout the day.