The loan-limit countdown has begun. In lieu of lower loan limits on conforming loans and mortgages insured by the Federal Housing Administration (FHA), some lenders have already stopped taking applications for financing in amounts above $625,500.
And the FHA has reminded lenders in a new mortgagee letter that it will install new ceilings in high cost areas, as of Oct. 1.
All this could change if the White House has a change of heart, or if legislation to allow the FHA, the Veterans Administration, and Fannie Mae and Freddie Mac to continue backing loans at their current maximums through the end of next year finds its way to President Obama's desk.
Otherwise, the conforming loan limit – the limit on the size of loans that can be purchased by the GSEs – as well as the ceiling on loans which can be insured by the FHA will fall from $729,750.
According to the FHA, only 669 of the 3,234 jurisdictions in which it backs loans will see any change. And then, "only a fraction of borrowers" living in those high cost areas will be impacted, the agency says, noting that just 3% of FHA-insured borrowers dwell in those markets.
Separately, the Federal Housing Finance Agency, Freddie and Fannie's regulator, has said just 250 counties will be affected.
But the relatively small impact hasn't stopped the housing trade groups from arguing that now is not the time to wean borrowers off the slightly lower loan rates that come with the government's backing. The fragile housing recovery, if you could call it that, would be dashed – or at least delayed – if the ceilings are rolled back at this time, they maintain.
But barring action in Washington, the FHA says "most" loan applications with a case number assigned on or after Oct. 1 will be subject to the new limits. At the same time, some lenders have already stopped taking applications for mortgages above the new maximum, saying they can no longer get the loans approved and closed in time to meet the Sept. 30 deadline.
The FHA current standard or "floor" loan limit for areas where housing costs are relatively low will remain unchanged at $271,050 for one-unit properties. The agency's limits vary based on area median home price, but all will fall within the range of $271,050 and $625,500.
The mortgage loan limit and maximum claim amount for FHA-insured reverse mortgages – known as Home Equity Conversion Mortgages, or HECMs – will remain unchanged at $625,500.