Report: FHA should lower loan limits

The Federal Housing Administration substantially raised its risk when it agreed to insure loans valued as high as $729,000 during the financial crisis, says a new report from the George Washington University Center for Real Estate and Urban Analysis. “Without question, FHA played a major role in keeping the housing market afloat during the economic collapse of 2008 and 2009, and we need to be careful about cutting back too rapidly,” said Van Order, Oliver T. Carr professor of real estate and chair of CREUA. “However, these large loan sizes are unlikely in the long run to assist FHA in reaching its historical constituencies,” he added.  “Our research indicates that larger loans are likely to perform worse than FHA’s traditional market, and we are concerned that the rapid increase in FHA’s market share will be hard to manage.” Researchers who worked on the report say FHA loan limits hovered at $362,790 in 2006, about $400,000 less than today’s limit. With loans valued at or above $350,000 performing worse than smaller FHA-insured loans, the research center is advocating a return to lower FHA loan limits and a renewed emphasis on first-time and minority homebuyers. Researchers who compiled the report found higher loan limits do little for minority homebuyers since 95% of the agency’s African-American and Hispanic borrowers opt for loans valued under $300,000. Write to Kerri Panchuk.