Many mortgage brokers and FHA lenders are privately concerned about the prospect of FHA loan limits being reduced significantly in 2011. In high cost states like California, Virginia, New York and Colorado, the reduced loan limits could eliminate many homeowners from FHA loan eligibility. According to Shawn Downs, a Colorado mortgage lender who founded Downs Financial, “Unfortunately consumers from all types of neighborhoods may be unable to refinance if Congress decides to lower the loan limits on government loans next year.” Downs continued, “HUD must protect themselves against rising foreclosure rates, but lowering the FHA limits could end of backfiring and cause loan defaults to spike as many homeowners have mortgages with low rates that are about to reset into a higher rate that is variable.” The reality is that there is a very good chance that 2011 FHA loan limits could be quite a bit lower and this may prevent borrowers in higher priced markets from home buying or even refinancing.
The Wall Street Journal reports that HUD is strongly considering lowering the FHA loan limits. Unless Congress extends the current mortgage limits, FHA limits in high cost areas will likely be reduced to $625,000. This amount may provide many homeowners with the mortgage amounts needed to purchase pricier homes, but in areas such as New York and San Francisco, borrowers may be limited to conventional mortgage loans. Current FHA loan limits are set to expire until December 31, 2010 and many real estate professionals are starting to voice their concerns. Most lenders and realtors strongly back Congress to pass an extension, or announce higher 2011 loan limits by early next month. Otherwise, FHA lenders may be reluctant to originate and underwrite FHA home loans at current loan limits.