Industry Groups Alarmed by New FHA Loan Limits

Mortgage & Real Estate

The Federal Housing Administration has adjusted its loan limits for 2014 and industry groups were surprised by the magnitude of some of the declines, particularly in the sand states that are still recovering from the housing bust.

Industry officials were expecting an average decline of 8% in areas where the median home price is between the FHA floor of $271,500 and the maximum loan limit of $625,500.

Starting in January, 146 counties will see loan limit reductions of over 20%, including 17 counties with loan limit reductions ranging from 40% to 50%, according to National Association of Home Builders senior vice president David Ledford.

In Las Vegas, the FHA loan limit will drop from $400,000 to $287,500 on Jan. 1. The Fannie Mae loan limit will remain at $417,000.

FHA loan limits in Riverside, Calif., will be reduced to $355,350 from $500,000. In Florida, the loan limits in Orlando will be reduced to $274,850 from $353,750.

It appears FHA has changed its methodology for determining loan limits. And the builders, Realtors and mortgage bankers have been pressing FHA officials to explain the changes but without success.

The three trade groups are expected to send a letter to HUD secretary Shaun Donovan to express their concerns about the 2014 loan limits.

The reductions will stifle the recoveries in very weak markets by limiting the availability of financing, Ledford says.

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