Under the deal by House and Senate negotiators, the FHA would be able to insure mortgages worth up to $729,750 in the most expensive regions of the U.S. for the next two years. The ceiling had been raised to that level during the financial crisis, but by law it dipped down to $625,500 on Oct. 1.
However, in a bow to conservatives, the bargainers would not increase the current $625,500 limit on mortgages that can be backed in expensive communities by Fannie Mae and Freddie Mac, the government-controlled mortgage giants, and by the Veterans Affairs Department.
Realtors and home builders had lobbied hard to raise the loan limits for all four entities, arguing that the last thing the country's stubbornly weak housing market needs is stricter limits on government-backed mortgages. They were backed by members of Congress of both parties from areas where housing costs are high, like Southern California and New York.
"We'd have liked broader language, but the FHA is still an important part of the puzzle," Jamie Gregory, a lobbyist with the National Association of Realtors, said Tuesday.
Conservatives and a majority of House Republicans oppose the increase, saying the government should reduce its involvement in subsidizing housing in hopes that the private market would step up.
In a written statement, the president of the conservative Club for Growth called increasing FHA's loan limits "beyond ridiculous" and said his group would note how lawmakers vote on the issue when they rate members of Congress seeking re-election. He said raising the limits does the opposite of reducing the federal role in housing markets — something that many conservatives and the Obama administration say they want to strengthen the private market and protect federal taxpayers.
It has so far cost the government about $170 billion to rescue Fannie and Freddie, which nearly collapsed in 2008 because of risky loans in their portfolios.
The size of loans that federal agencies can back is based on a formula that includes a region's median housing cost. More than a fifth of the country's roughly 3,100 counties would be affected by the higher FHA loan limits.
FHA insurance is often used by buyers who put down small down payments. The agency has insured more than 40 million homes since it was established in 1934, and last year three quarters of those it insured were first-time buyers.
"It's good news for the more than 600 counties that faced loan limit decline," said Robert Dietz, an economist for the National Association of Home Builders. "FHA is important for first-time home buyers, so that will help support housing demand."
The provision was included in a bill financing the departments of Housing and Urban Affairs, Commerce, Justice, Transportation and several other agencies for the rest of the government's fiscal year, which began Oct. 1. It would also keep all other federal agencies functioning through Dec. 16 as lawmakers continue working on permanent spending bills.
The Democratic-run Senate had voted to increase the loan limits in its housing bill, but the version approved by the Republican-led House left the ceilings alone.
The House and Senate are expected to approve the overall compromise legislation later this week.
Copyright 2011 The Associated Press.
