In response to Jumbo Mortgage Loan Squeeze: Will it Affect Home Prices? Dan, a loan officer for a mortgage broker, pinged me with …

Hello Mish

Perhaps even more important than the Jumbo Squeeze is the coming “FHA squeeze”. Enlarged FHA loan size also expires in October.

For example, in Minneapolis, the current FHA max for single family loans is $365,000. On October 1, that reverts back down to about $275,000. While some buyers of homes in the $290,000 – 380,000 range who could have done FHA loans will be able to switch to conventional conforming loans, some will not.

FHA loans are a lot easier to get: higher debt ratios are allowed, lower credit scores are allowed (without rate upcharges), and the down payment requirement is a mere 3.5%.

The reduction in max FHA loan size will take some buyers out of the market.

Once again, government does not belong in the mortgage business. If it was up to me (but it’s clearly not), I would shut down Fannie Mae, Freddie Mac, and the FHA entirely.

Nonetheless, with these changes, fewer people will qualify loans and the qualifications amounts will be lower and/or the down payments higher.

Mike “Mish” Shedlock
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