Just reported by Housing Zone:
The Federal Housing Administration (FHA) decision to reduce
the maximum size on single-family home mortgages that it will guarantee for
lenders will have a more pronounced effect on markets where home prices have
not recovered to 2008 levels, according to Zelman & Associates,
The FHA announced last week that the maximum allowable loan
it will back is dropping to $625,500 from $729,750 in 650 counties as of Jan.
1, 2014. The agency typically backs loans for first-time buyers who can only
put as little as 3.5 percent of the purchase price as a down payment. The
administration raised the limits during the depths of the 2008 housing crash.
Those limits initially were to expire in 2009 but were extended to provide
credit to a fragile market.
The real estate consultancy notes that the markets with the
largest concentration of mortgage originations above the new threshold are
Stockton, Calif., (4.8 percent); Fresno, Calif., (4.2 percent); Phoenix, Ariz.,
(3.4 percent); the Inland Empire (3.3 percent); and Salt Lake City, (3.2
percent).
“For the majority of potential FHA borrowers affected by the
reduction in loan limits, we conservatively expect that it is unlikely that
they will be able to easily qualify for an alternative route for financing in
today’s stringent underwriting environment,” said Zelman in a statement.
According to Zelman’s analysis of the top 75 markets, 57
percent of mortgage originations were conventional loans, 32 percent were
backed by the FHA, and 11 percent were financed by the Department of Veterans
Affairs or other government loans.
The FHA prescription that the current median sales price in
a market be used to calculate the loan limit rather than the previous
flexibility of choosing the higher of either the market’s median sales price or
the 2008 loan limit will hit hardest in markets with significantly depressed selling
prices. The markets with the most severe reductions from 2008 home prices
include
down 35 percent.
