Congress approved the restoration of the $729,500 loan limits that expired October 1st 2011. The objective is to move away from the government sponsorship of the mortgage market. The mortgage insurance charged by FHA up front (1.0%) and on an annual basis (1.10% – 1.15%) paid monthy has made the FHA insurance fund very healthy – so no cost to tax payers to increase the limits. This will allow a loan up to 96.50% of the value of a home – thus the hefty mortgage insurance. Unfortuanely even if the loan to value is much lower the cost is still there even though the risk is much less. Leaving the $625,500 in place for Fannie Freddie conventional loans leaves a lot of well qualified borrowers out of the market in a time that we need all the help getting homes sold. While there is not a similar mortgage insurance fund to ensure that the responsiblity for these loans would fall to Fannie / Freddie (and taxpayers) – the loan limit itself is not critical factor. Putting addtional risky loans into Fannie / Freddie is the concern. If it were up to me – restore the limits for Fannie Freddie back to $729,500 – but LOWER the REQUIRED loan to value that woudl be allowed to 75 – 70% so the collateral for the loan is not an isssue. Market would have a quality soultion for a home purchase up to $1,000,000 or so … and risk would be low. That is what I think – your comments are welcome. [ref] Wall Street Journal
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