Monday, January 20, 2014

Research: The impact of 2014 FHA Loan Limit Changes

by Bill McBride on 1/20/2014 11:09:00 AM

Here is some research from Laurie Goodman, Ellen Seidman, and Jun Zhu at the Urban Institute: FHA Loan Limits—What Areas Are the Most Affected?. Some excerpts:

FHA loan limits are set at the county level, and there are 3,234 counties in the United States. Loan limits will not change for 2014 in 2,493 counties, most of which remain at the loan limit floor of $271,050. However, 652 counties will have lower limits and 89 will have higher limits. The Mortgage Bankers' Association has calculated that 92 percent of the counties located in non-metropolitan areas are unaffected. The situation is very different in metropolitan areas. While limits are unchanged in 50.7 percent of the counties located in Metropolitan Statistical Areas (MSAs), they will decline in 44.4 percent while increasing in 4.9 percent of the areas. The changes in some markets are larger than would be predicted by either the drop in the ceiling from $729,750 to $625,500 (a 14.3 percent decline), or the change in the median home price multiplier from 125 percent to 115 percent (an 8 percent decline). This has two primary causes: a change in the base year for determining median house price and a revision of MSA boundaries.
...
While the impact of the change in the FHA loan limits is very modest overall, some communities will be very adversely affected. These are communities where the drop in the limits is large and FHA guarantees a high percentage of mortgages.
There is much more in the research note including a list of the impacted communities. As the authors note, the overall impact will be modest, but some communities will be impacted.

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