On the same day that independent auditors released a reportshowing the government mortgage insurer, the FHA, has even less cash reserves now than it did last year to cover potential losses, Congress is readying to vote on a measure that would increase the FHA's market share.
Lawmakers, under heavy pressure from housing lobbies, want to reinstate higher loan limits at the FHA, although not at mortgage giants Fannie Mae and Freddie Mac, which are currently under government conservatorship.
The loan limits fell from a maximum $729,750 to $625,000 on October first. This affected 600 US counties for FHA, but less than half of that for Fannie and Freddie. FHA is not a mortgage originator but an insurer. It is currently the only low down payment game in town, with a minimum 3.5 percent home buyer investment. It is therefore supposed to be a small share of the mortgage market, but given today's tight underwriting, it's about a third of the market.
Now the FHA's share could get even larger because it would have a hold on a small segment of the market from which Fannie and Freddie would be excluded. So how would that affect FHA's bottom line?