Earlier this year, the Economic Stimulus Act of 2008 was enacted by congress in an effort to encourage business investment and try to avert impending recession and crisis. Needless to say, their efforts haven't seen success so far, for reasons everyone is familiar with. What you're likely to remember about the stimulus act is the $300-$600 check you received after filing your taxes this year, but what you might not remember is that the act also changed the ceiling for FHA loans.



Prior to March 6, 2008, the limit for FHA loans was $362,790. What that meant was that the FHA could not legally provide insurance to loans above that set value. As part of the stimulus package this year (referred to as the "FHA Forward" program) however, congress authorized the Federal Housing Administration to increase their maximum loan limit from $362,790, to between $271,050 and $729,750, depending on location and the size of the home. For instance, in Denver the FHA will now insure mortgages on single-family homes as high as $406,250. The most populous areas with the highest costs of living such as New York City and Los Angeles have seen their limits increased to the full $729,750.

As private mortgage insurance became widespread, and other options saw increased availability early this decade, FHA loans lost popularity, but in the past several months FHA loans have seen a resurgence. Due to many sub-prime lenders recently finding themselves teetering on the verge of default, many banks and lending institutions have become increasingly reluctant to provide 100% financing on home mortgage loans, and FHA loans are being seen more often as the alternative for potential borrowers who would not normally be able to receive conventional financing for their new home.

The Federal Housing Administration was created as part of the National Housing Act of 1934 (subsequent to the New Deal creation of the Securities and Exchange Commission), as a reaction to the collapse of the banking system in the 1930's, in order to counteract the vast decline in home ownership during the Great Depression. It's not that surprising then that a broad section of public is revisiting the FHA for assistance now, as we move toward what's being called the greatest threat to the economy of the U.S. has been faced with in almost eight decades.

An important distinction to make is that the FHA does not itself originate loans, but rather insures lenders against loss, should a borrower become unable to meet the terms of the loan. That being the case, all FHA loans are not the same. Different lenders offer different terms and incentives, and for that reason consumers should consider meeting with a Certified Mortgage Planner (not the same thing as a broker) who can assist them in comparing offers from the lenders who meet their criteria.

With the latest polls showing continuous decrease in consumer confidence, and increase in pessimism regarding the economy, it's not surprising that we're looking to some of the same institutions for help now that we did during the Great Depression. It's impossible to say for sure what will happen over the next few years, but at least we can take comfort in something this time that we couldn't last time: we've seen it all before.