Legislation last year nearly doubled the maximum mortgage the FHA could insure, to $729,750 for single-unit properties and almost $1 million for multi-unit ones. As a result, the FHA is moving into expensive markets, especially on the West Coast, in which it previously had little or no role. Even some fairly fancy condo buildings are now trumpeting FHA financing. As the New York Times reported recently, among those buying property with little or no money down, thanks to FHA, are investors and well-off people who could have come up with more equity. Larger loans represent a greater burden on the agency if they ultimately default. On the other hand, it’s also possible that bigger loans are less likely to default, since richer people tend to take them out in the first place. Our point here is that, whatever the additional risk may be, the federal government is assuming it in a way that facilitates the upward transfer of wealth.
When adopted last year, the higher FHA loan limits were billed as a temporary fillip to the housing market. But temporary subsidies have a way of enduring. Congress has already extended the higher limits once, and House Financial Services Committee Chairman Barney Frank (D-Mass.) has spoken of making both ceilings $100,000 larger and permanent.
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