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Media reports give a misleading picture of FHA mortgage limits

Friday, December 18, 2009; A32

Regarding the Nov. 30 editorial "The FHA goes upmarket":

Recent press reports about Federal Housing Administration loan limits have left the impression that the general limit is $729,750. This is not true. The primary factor for establishing FHA loan limits is the corresponding median home price in a particular metropolitan area.

The $729,750 figure is a secondary limit to be considered only if the median house price in the corresponding area is high. In a large majority of the nation's counties, the loan limit is $271,050, and the average FHA loan in fiscal 2009 was $185,278. Less than 2 percent of the FHA's outstanding loan portfolio consists of loans that exceed $417,000.

Because real estate markets are the most geographically variable in price, a single national standard is unfair. For years, the FHA was effectively out of the market in major portions of California, New York, Washington and Massachusetts because the national ceiling was well below median home prices in those areas. Congress changed the law to reflect this and allow the FHA to finance higher-cost homes in higher-cost areas so that affordable mortgage credit was available to middle-income families everywhere.

Additionally, instead of representing a financial threat to the FHA, these higher-priced loans give the agency a more geographically diversified portfolio.

A recently completed audit of the FHA concluded that higher-cost loans actually have a lower claims rate than lower-cost loans.

Barney Frank, Washington

The writer (D-Mass.) is chairman of the House Financial Services Committee.

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