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FHA Rates Remain Low, But The Future of Loan Limits is Uncertain

The number of mortgage applications across the United States climbed by more than 10 percent since last week, according to the Mortgage Bankers Association weekly report. The bulk of the applications, more than 75 percent were for refinancing purposes. Even purchase applications rose tentatively by almost 5 percent since last week. Many of those applications had a seal of approval from the Federal Housing Administration (FHA), thanks to the record low FHA mortgage rates.

Low Annual Percentage Rates (APR) have been a staple of mortgage lending since September. Mortgage applicants in the U.S. have been enjoying pretty good mortgage rates for quite a few months, thanks in part to efforts from the Federal Reserve to keep long-term interest rates at all-time lows, and also due to the ongoing debt crisis in Europe. Institutional investors have shown deep concerns over the sovereign debts of Greece, Italy and other member nations of the European Union. In times of economic turmoil, investors look for safe-haven investments such as U.S. Treasury debt securities, a strategy that’s often referred to as a “flight to safety.” A buying spree of U.S. Treasury bills and bonds tends to push their yield down, thus leaving American borrowers to enjoy good mortgage rates for a little longer.

FHA mortgage rates for 30-year fixed home loans are now hovering around the 4 percent mark. The application volume for 15-year fixed rate mortgages has seen a considerable increase, thanks to their incredibly low average APR -around 3.5 percent. Adjustable Rate Mortgages (ARM) feature even lower APR numbers, around 3 percent for a 5/1 ARM, though borrowers are more interested in fixed-rate mortgage products.

Mortgages underwritten and guaranteed by the Federal Housing Administration are currently being closely watched by members of Congress who are concerned that FHA loan approvals aren’t going to the average American borrower. A recent news report published by financial news media outlet Bloomberg indicates that many wealthy borrowers are taking out FHA loans to purchase five-bedroom homes near the ritzy Telluride ski resort in Colorado. The current FHA loan limits for most homes in upscale real estate markets is $625,500. Congress is divided between lobbying groups who want the FHA loan limits raised to almost $730,000 and Representatives who think FHA mortgages should not be offered to purchase McMansions.

One of the lobbying groups leading the push for higher FHA loan limits is the Mortgage Bankers Association (MBA), which is presided by a former FHA commissioner.