Fha Loans and the New Age

Early this year, the Economic Stimulus Act of 2008 was enacted by congress, in an effort by the Bush Administration to rout the impending economic crisis, and encourage business investment. It goes without saying that their efforts haven't been met with success thus far. What readers will most likely recall of the stimulus package is the $300-$600 rebate check they received. What they might not remember is that the stimulus package also changed the limits for FHA-insured home loans.

Prior to March 6, 2008, the limit for FHA loans was $362,790. What that meant was that the FHA could not legally provide insurance to loans above that set value. As part of the stimulus package this year (referred to as the "FHA Forward" program) however, congress authorized the Federal Housing Administration to increase their maximum loan limit from $362,790, to between $271,050 and $729,750, depending on location and the size of the home. For instance, in Denver the FHA will now insure mortgages on single-family homes as high as $406,250. The most populous areas with the highest costs of living such as New York City and Los Angeles have seen their limits increased to the full $729,750.

As availability of private mortgage insurance grew (along with other options), popularity for FHA loans waned, but the past several months have seen a resurgence of FHA loans. Due to many sub-prime lenders recently finding themselves teetering on the verge of default, many banks and lending institutions have become increasingly reluctant to provide 100% financing on home mortgage loans, and FHA loans are being seen more often as the alternative for potential borrowers who would not normally be able to receive conventional financing for their new home.

The Federal Housing Administration was created as part of the National Housing Act of 1934 (subsequent to the New Deal creation of the Securities and Exchange Commission), as a reaction to the collapse of the banking system in the 1930's, in order to counteract the vast decline in home ownership during the Great Depression. It's not that surprising then that a broad section of public is revisiting the FHA for assistance now, as we move toward what's being called the greatest threat to the economy of the U.S. has been faced with in almost eight decades.

An important distinction to make is that the FHA does not itself originate loans, but rather insures lenders against loss, should a borrower become unable to meet the terms of the loan. Seeing as that's the case, every FHA loan is not created equal. Different lenders offer different terms and incentives, and for that reason consumers should consider meeting with a Certified Mortgage Planner (not the same thing as a broker) who can assist them in comparing offers from the lenders who meet their criteria.

As polls continue to show steady increase in pessimism regarding the future of the U.S. economy, and decrease in consumer confidence, it's no surprise that we are now looking to the same institutions for assistance now that we looked to during the Great Depression. It's impossible to say for sure what will happen over the next few years, but at least we can take comfort in something this time that we couldn't last time: we've seen it all before.