Lawmakers Agree to Increase FHA Loan Limits

U.S. lawmakers reached an agreement to boost the maximum size of home loans backed by the Federal Housing Administration over opposition from some House Republicans and free-market interest groups.

House and Senate lawmakers drafting language to reconcile a package of spending bills agreed to apply a higher limit of $729,750 to FHA-insured loans, while leaving the limit on loans backed by mortgage companies Fannie Mae and Freddie Mac at the current level of $625,500, according to the proposal released tonight. The Senate measure originally included an increase for loans backed by both the FHA and the government-sponsored enterprises, or GSEs, which have been under government conservatorship since September 2008.

The agreement on the loan limits will require House leaders to put the provision on the House floor against the wishes of lawmakers including House Financial Services Chairman Spencer Bachus, an Alabama Republican, and Representative Jeb Hensarling of Texas, the committee’s vice chairman and the chairman of the House Republican Conference.

“Further expanding the federal government’s role in the secondary mortgage market is not necessary,” Bachus, Hensarling and five other Financial Services subcommittee chairmen, wrote in a Nov. 7 letter to lawmakers on the conference committee responsible for reconciling the differences between the House and Senate spending bills. The House bill did not include the provision increasing the limits.

The limits, which vary by locale, currently apply to loans backed by the FHA and Fannie Mae and Freddie Mac, which together buy or guarantee about 90 percent of all residential home loans.

Bipartisan Support

Should lawmakers pass the final measure, the FHA limit would be raised a little more than a month after it was automatically reduced to $625,500.

The Senate in October backed the increase to FHA and GSE limits with bipartisan support. The resulting debate has split housing and financial services industry trade groups and has brought the opposition of groups like the Club for Growth and Americans for Prosperity.

Lawmakers who back the higher limits are concerned that any withdrawal of federal support could undermine the frail housing market. They made their case to House and Senate appropriators, who spent last week meeting in private to hash out details of the $182 billion spending bill that includes the mortgage provision.

Senators Robert Menendez, a New Jersey Democrat, and Johnny Isakson, a Georgia Republican, sponsored the Senate provision, which would raise the limits for all three housing agencies until Dec. 31, 2013.

To contact the reporter on this story: Phil Mattingly in Washington at pmattingly@bloomberg.net

To contact the editor responsible for this story: Lawrence Roberts at lroberts13@bloomberg.net

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