Some counties in the U.S. face loan limit reductions of more than 50% after the Department of Housing and Urban Development decided to change the upper loan limit for homes located in high-cost areas from $729,750 to $625,500, mortgage professionals claimed this week.
The Mortgage Bankers Association and several housing-related organizations mailed the letter to HUD Secretary Shaun Donovan, advising his agency not to reduce the loan limit in "any given area beyond the amount due to the change from the temporary to permanent statutory loan limit provisions."
They also asked HUD to phase in the new limits to give local jurisdictions time to react.
The associations also sugggested HUD provided the industry with inadequate response time by giving them until Jan. 6 to appeal. The trade groups would like at least another 90 days, with March 6th being the recommended deadline.
The letter arrives several days after the FHA released sweeping changes that increased the maximum loan limit for mortgages in high-cost areas. The same advisory kept the ceilings for FHA reverse-mortgages products and loans in low-cost areas the same.
The pushback letter, filed by the MBA and the National Association of Realtors among others, claims more than 300 counties face loan limit reductions greater than 10%, with some seeing 50% cuts in the limits.
"While the housing market has improved in many areas of the country, the recovery remains fragile and uneven, especially in many of the areas where HUD has most severely reduced FHA loan limits," the groups warned.
"Purchasing a home remains a challenge for many potential homeowners due to the restrictive availability of credit. Many borrowers in areas affected by the reductions rely on FHA-insured products and would not have qualified under the low loan-to-value and tight credit standards currently required by the private market," the letter added.
NAR and other industry groups also want clarity on how these decisions were made.
"HUD has not provided information on its methodology for establishing the new loan limits, so it is not clear why many areas experienced limit reductions much larger than what was expected as a result of the statutory change," the trade groups wrote.
In response, HUD referred journalists to its initial statement on the new high-cost loan ceiling. In it, the agency called the shift a necessary step as FHA evaluates its role in a recovering housing market.
"Implementing lower loan limits is an important and appropriate step as private capital returns to portions of the market and enables FHA to concentrate on those borrowers that are still underserved," FHA Commissioner Carol Galante asserted.