The conforming loan limit has been raised back to $729,950 from $625,500 for high-cost housing areas effective immediately for FHA loans that will be originated through 2013.

The measure, which was approved by both the Senate and House of Representatives on November 17, 2011, was signed into law by President Obama the following day. However, the new law does not raise the loan limits for Fannie Mae or Freddie Mac-backed loans, which raised the concern of many House and Senate Republicans.

Senator Bob Corker (R-Tenn.) said in an interview with Bloomberg that raising the loan limits for loans only backed by the FHA will simply drive more business into Ginnie Mae securities and put the FHA at even greater risk of losses to taxpayers.

The expanded conforming loan limits, which were decreased on October 1, 2011 (after Congress and the White House declined to take action to prevent the maximum conforming loan limit increase) are intended to allow homeowners in high-cost areas such as San Francisco or Los Angeles to finance their home purchase with a conventional mortgage rather than a jumbo mortgage, which typically carries higher interest rates and therefore, costs the homeowner more per month.

About the Author

Alison writes about rental and mortgage market trends for Zillow Blog.

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