Government lowers maximum amount for Freddie, Fannie and FHA loans

Starting Oct. 1, home buyers seeking government-insured mortgages will have to pick lower-priced houses if they want the federal government to back the loans.

Freddie Mac, Fannie Mae and the Federal Housing Administration are lowering the maximum loan amounts that the agencies will guarantee in more than 850 counties in the United States.

The new limits were supposed to take effect in January 2009, but the economic downturn led Congress to delay the implementation. In the Tampa Bay area, the FHA is reducing the maximum insured loan for single-family homes from $292,500 to $271,050.

The limits will drop from $729,750 to $625,500 in the priciest areas like New York, California and Washington, D.C. Borrowers whose loans exceed the government maximum will need larger down payments or jumbo mortgages, which carry higher interest rates.

Unless Congress intervenes, the new limits take effect in 85 days. Real estate agents and loan officers fear the limits will drive home values down by reducing the pool of homes that first-time buyers — who typically use government-backed loans with low down payments — could purchase.

"I believe this will cause widespread defaults and foreclosures," said Andy Wood of American Mortgage Services in Tampa. "If this is not stopped, it will be the thing we look back on as the straw that broke the housing market's back."

Despite the pushback, the Obama administration says it's time for the new limits to take effect. Some Republicans in Congress are looking to further shrink the Federal Housing Administration's impact on the market.

Mark Puente can be reached at mpuente@sptimes.com or (727) 893-8459. Follow him on Twitter at twitter.com/markapuente.