By Dona DeZube, HouseLogic.com

Home owners need Congress and the Obama administration to tackle several issues that are exacerbating problems within the fragile real estate market, including reduced loan limits, higher downpayment requirements, and condominium loan rules, a spokesperson for the NATIONAL ASSOCIATION OF REALTORS® told the House Financial Service Committee’s Subcommittee on Insurance, Housing, and Community Opportunity yesterday.

Mortgage loan limits

Home buyers and home owners who live in high-cost housing markets will suffer if Congress doesn’t make permanent mortgage loan limits that are set to expire Sept. 30, 2011, said NAR spokesperson Steve Brown, executive vice president, Crye-Leike REALTORS®, in Memphis, Tenn.

The current maximum FHA, Fannie Mae, and Freddie Mac loan limits would fall in high-cost areas from the current $729,750 to $625,500 and to $271,050 for FHA and $417,000 for Fannie Mae and Freddie Mac loans in areas with lower-cost housing.

“This will hurt the housing recovery by reducing access to safe, affordable FHA loans in 669 counties in 42 states, plus the District of Columbia,” he told the panel. “Only eight states would not be impacted. The resulting average reduction in limits will be more than $68,000.”

If the loan limits fall, 27% of all owner-occupied homes in the United States will be ineligible for Fannie Mae and Freddie Mac loans and more than 59% of all owner-occupied housing will be ineligible for FHA financing.

Home buyers and home owners whose loans are above the limit will have to pay higher jumbo-mortgage interest rates.

FHA downpayments

Brown also spoke to the panel about keeping the FHA downpayment at 3.5% in the face of calls for higher downpayments from legislators who want the federal government to reduce its role in housing finance.

“FHA’s book of new business (written since 2009) is performing extremely well and there is no reason to make more restrictive changes in the name of creating a false sense of ‘cleaning up’ the real estate financing problems of the past,” he said. “In fact, the current stagnant market could be sent in to a deeper, more serious downward spiral with any increase in the downpayment requirement.”

Higher downpayments would make it harder for the average American family to buy a home, Brown said.

“It would take the average American family, acting frugally, nearly 7 years to save for a 5% downpayment and the closing costs that average 3% to 5% of the purchase price on a $200,000 home, and more than 10 years to save 10%. A 20% downpayment on the same home would require 17.3 years of saving for this same family.”

FHA condominium loans

HUD could further help the housing recovery by changing its rules for condominium loans, Brown said. If FHA changed its rules to allow more condominiums to gain FHA approval, lenders could sell more foreclosed condos because more units would be eligible for FHA mortgages, Brown told the panel.

“Individuals and families purchasing units in these developments with FHA loans will have access to more flexible and affordable financing opportunities,” he said. “Potential buyers with FHA mortgages will have a wider choice of condominium developments. Existing owners in these developments benefit as vacant units are purchased and occupied and the owner-occupied ratio increases.”

Source: NAR