FHA Loan Limits

The Federal Housing Administration (FHA) insures mortgages so that lenders will make loans to borrowers who might otherwise be unable to get a mortgage. FHA also sets limits on the dollar value of individual loans that it will insure. The maximum FHA-insured mortgage a borrower may obtain varies throughout the country depending on local housing prices, resulting in hundreds of different loan limits. To measure local house prices and set these loan limits, FHA relies on data from a Federal Housing Finance Board survey that collects house purchase prices and other related data on nongovernment-insured mortgages from mortgage lenders. In response to congressional concerns that FHA loan limits for some areas seem high, this report (1) compares data on house prices from the Finance Board with data that the Department of Housing and Urban Development (HUD) collects to measure changes in house prices, (2) presents the views of officials of the agencies involved on the results of this analysis, (3) analyzes the effect on median prices of supplementing the Finance Board's and HUD's data with information each does not already include on lower-priced homes with government-insured mortgages, and (4) provides information on FHA's recent efforts to explore alternative sources of data for measuring median home prices.

GAO noted that: (1) the Finance Board and OFHEO's estimates of 1997 median home sales prices were similar in about two-thirds of the metropolitan areas GAO reviewed; (2) in 27 of the 42 areas, the two agencies' estimates were within 5 percent of each other; (3) loan limits based on either set of data would be similar in these areas; (4) for the remaining 15 areas GAO reviewed, the Finance Board estimated a higher median home sales price in 10 of the areas, while OFHEO's estimate was higher in 5 areas; (5) officials familiar with these data cited the low number of substantive differences in GAO's analysis as an indicator of the validity of the Finance Board's data; (6) because no substantive difference existed between the two sets of data in about two-thirds of the areas GAO reviewed, the officials indicated the Finance Board's data are a reasonable measure of an area's median sales price for homes without government-insured financing; (7) in those areas for which substantive differences did exist, officials from the different agencies involved agreed the reason was that the Finance Board includes larger loans, and thus higher home purchase prices, in its survey than does OFHEO; (8) the Finance Board's 1997 data include loan amounts up to $500,000 and house purchase prices up to $750,000; (9) OFHEO's data for 1997 included no loans greater than $214,600; (10) these officials also cited normal variations associated with surveys and statistical sampling as a reason for some differences between the two sets of data; (11) supplementing the data from either the Finance Board or the OFHEO with data on homes financed with government-insured loans would lower the estimated median home sales price in any given area by 2 to 31 percent; (12) the purchase prices of homes financed with mortgages insured by FHA and the Department of Veterans Affairs are, on average, lower than those of homes bought with privately insured financing; (13) these lower prices result from the limits on the size of individual loans FHA may insure and because government-insured financing tends to be focused on first-time homebuyers; (14) FHA is engaged in an effort to use additional sources of data; (15) FHA relies heavily on the Finance Board's survey for the data it needs to set its loan limits, but to a limited extent it has also supplemented that survey with data its field offices gather on local home sales prices; and (16) FHA is considering using data on loans that neither the Federal National Mortgage Association nor the Federal Home Loan Mortgage Corporation has purchased.