President Barack Obama signed a bill Friday that reinstates the recently expired higher loan limits that were in effect for FHA and VA loans through December 31, 2013 but does not provide this extension to Freddie Mac and Fannie Mae. H.R. 2112 sponsored by Jack Kingston (R-GA) was approved by a House/Senate conference committee vote of 298 to 121 in the House and 70 to 30 in the Senate on Thursday and sent to the White House.
Section 238 of the bill, The Agriculture Rural Development, Food and Drug Administration and Related Agencies Appropriation Act of 2012 returns the limit on FHA loans to the multi-tiered arrangement that existed under the Economic Stimulus Act of 2008, provisions for which expired on October 1. Since that date the FHA and GSE maximum has been at $625,500. Under the restored limits the highest FHA loan available in designated high cost areas will be $729,750. Loans written between October 1 and today's effective date of the new legislation will not be eligible for the new limits. Limits on VA loans will return to the levels established under the Veterans Benefits Improvement Act of 2008 which are, in some cases, higher than FHA limits.
The Senate had amended the House bill, adding the same extensions for the GSEs as FHA, but the joint conference committee rejected that change. Instead, limits for the two government sponsored enterprises (GSEs) will be determined by the greater of the limitation in effect at the time the loan was purchased or "the limitation that was prescribed for loans originated during the period beginning on July 1, 2007 and ending on December 31, 2008, pursuant to section 201 of the Economic Stimulus Act of 2008, thus keeping the maximums on a range from $417,000 to $625,500 depending on local market conditions.
The new legislation also sets an annual fee for loans guaranteed by Freddie Mac and Fannie Mae. This fee is in the amount of 15 basis points on the outstanding principal balance of the loan and is "independent of any guarantee fees upfront on ongoing, charged to the borrower, and the premium loan fee shall not be affected by changes in guarantee fees." The fee, according to the bill, is expected to achieve an annual income of $300 million in revenue which "shall be used to pay for costs associated with maintaining loan limits established under this section.
Correction: When this story originally ran on November 18 it contained information that H.R. 2112, in addition to raising loan limits for FHA, contained a provision setting an additional fee for loans guaranteed by Freddie Mac and Fannie Mae. This fee, in the amount of 15 basis points would be independent of other GSE fees and was expected to generate annual revenue of $300 million to pay for the costs association with maintaining loan limits. We obtained what we were told was the final version of the bill from its sponsor, however Fannie Mae’s Director of Corporate Communication has informed us that this provision was eliminated from the bill before its final passage and that no such fee is required for loans guaranteed by either of the GSEs. We apologize for the error.
The administration and many congressional Democrats had opposed the higher limits for FHA because this might increase FHA's market share at the same time the government was trying to encourage private lending. Others were opposed to excluding the GSEs from the increase, also because of the potential impact on the FHA share.
The National Association of Home Builders (NAHB) was quick to applaud the bill, issuing a press release from Chairman Bob Nielsen that says in part, "We commend congressional leaders in both parties and each chamber of Congress for taking this action to boost overall mortgage liquidity in the marketplace, create jobs, and provide home owners and home buyers with safe and affordable financing. "Restoring the higher FHA loan limits will help to stabilize home values, provide constancy while private investors re-enter the market, and enable millions of creditworthy consumers to get home loans with the best mortgage rates and lowest fees and downpayment requirements"