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June 1, 2010

FHA loan limits leave borrower out in the cold

Wonk reader Josh, an attorney who lives in Howard County, was hoping to refinance his first and second mortgages into one FHA "conforming jumbo" loan and enjoy lower monthly payments. But he can't -- and it has nothing to do with his home value or his credit score.

The trouble is that he needs a $590,000 loan. The limit in Howard County, like all of the Baltimore metro area, is $560,000.

But Josh is within walking distance of Montgomery County, where the limit is just under $730,000. That's true everywhere in the D.C. metro area, including Prince George's County, where typical homes go for a lot less than in Howard.

This makes no sense to him.

"Metropolitan Maryland is arbitrarily divided," he said in an email to me. "I live in Howard County, about one mile from the MoCo line and 14 miles from the DC border. I am about 25 miles from Baltimore, but my home is lumped into the Baltimore market."

The difference a mile makes: $400 a month. That's how much he could lower his payments if he could go from a first mortgage with a 6.25 percent interest rate and a second mortgage at 7.5 percent into a single loan with a 5 percent rate.

"I assume a lot of homeowners in Howard and Anne Arundel are in the same predicament. Can anything be done?" he asks. "Why not just combine Baltimore-DC into one FHA district?"

The U.S. Department of Housing and Urban Development, which oversees FHA, says it sets limits by metropolitan statistical area. Baltimore and Washington are separate regions by that measure.

The two cities and their satellite suburbs are in the same "combined statistical area," a federal nod to the significant economic ties between the two. But HUD goes with the smaller metropolitan statistical areas where ones exist.

"The program staff tells me the MSA decision came from Congress," says HUD spokesman Lemar Wooley.

HUD seems to go smaller where it can, rather than larger. Montgomery has the same limit as the Washington metro area, but it's actually grouped in the smaller Bethesda-Gaithersburg-Frederick metropolitan division, a subsection of the D.C. MSA.

And some parts of Maryland are simply MSA-less. Talbot County is part of a micropolitan statistical area. Several counties, such as Caroline, are on their own.

However you combine areas for the purposes of FHA loan limits, you're going to end up with some pretty big ranges. Baltimore City's median home sale price in April was $135,000, and yet its limit is the same as Howard, with a $340,000 median price. 


Posted by Jamie Smith Hopkins at 7:00 AM | | Comments (10)
Categories: Mortgages


All of these programs are bogus and not designed to help most homeowners. Last year, it took me over 5 months, 4 appraisals three separate programs to find out whether I could refinance my home. We started at 4.75%, ended at 5.75% (I had a 6%). I decided it was not worth the effort and did not refinance. i am glad that Senator Dodd and Representative Frank got their sweet heart deals before they re-wrote the rules. They really deserve it so much more than we simple working folk.

If a 590k loan amount leaves him with at least 20% equity he has the option of either using a 30k piggyback 2nd, or using a non-GSE portfolio lender such as ING that will do a 7 year ARM at 4.125% with no points up to an 850k loan amount.

A third option if he has it is to use savings to makeup the 30k shortage. Without knowing how much he has weighted at the 6.25 and how much is at 7.5 I can't give a precise figure, but it looks as if he stands to save at least $6000/year in finance charges so it may well be worth it. Keeping in mind the skipped monthly payment and the escrow refund, the net out of pocket he'd feel would be closer to 25k.

So bring 30k to the table to close the loan. Certainly someone who can afford 600k in loans would have substantial assetts- Right?
IN either case, i have no sympathy for this situation. if there was money to be made doing loans like this then the banks would be making them, not the gov't. What does that tell you?

You might want to check to see if the 1st mortgage is owned by Fannie or Freddie. You may be able to refinance only the 1st mortgage and subordinate the 2nd mortgage. By staying with Fannie or Freddie, you will save 2.25% in the FHA Funding Fee plus monthly mortgage insurance. IF Fannie or Freddie do not own the loan, you can still convert the 1st mortgage into an FHA loan and pay the fees while subordinating the 2nd mortgage. Something can still be done.

The "using the home as an ATM" days are over - you now have to pay to play. As it should be.

If someone in Howard County wants help refinancing a $590k mortgage, I'll do my part. I'll call Sen. Mikulski. All I want in return is for all of Howard County to help end drug induced blight in Baltimore City where the median house price is one fifth of the value of his mortgage. Deal?

I can count on my unicorn's horn how many subordination agreements I've gotten approved, or even heard of happening first hand. 2nd lien holders take it as an opportunity to fully re-underwrite the loan to ambiguously higher standards often charging $200+ "review fees" and taking 30+ days before denying .

Completely agree with Chris.

Many things are "arbitrarily divided" in MD. E.g. the kids from a house across the street go to a better school. Why? Well, that's how it's divided. Josh knew he was buying in HW county and should've done some research if he was planning to refinance.

Just gather your equity and go find the other best deal available (ING was a good suggestion).

P.S. Shouldn't FHA actually focus on providing affordable housing instead of the jumbo loans?

Jelena, Perhaps this homeowner bought his house before 2008 when the rules changed. Of course the loan limits were even lower before then. Anyway, Howard and AA shouldn't be lumped with Baltimore anymore. They both have their own economies and a large % either stay in county or travel to the DC metro for work. Much of Columbia, Laurel, Odenton, Crofton consider themselves DC metro and rarely go to Baltimore especially since the Orioles stink.

Arbitrary or not, this is probably bad timing to expect any quick changes from the Housing and Development office. But I'd be curious to know if any attempt was made and how it has worked out?

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About Jamie Smith Hopkins
Jamie Smith Hopkins, a Baltimore Sun reporter since 1999, writes about the regional economy. Her reporting on the housing market has won national and local awards. Hopkins is a Columbia native and has lived in Maryland all her life, save for 10 months spent covering schools in Ames, Iowa.
She trained to become a wonk by spending large chunks of time as a geek and an insufferable know-it-all.
Baltimore Sun articles by Jamie

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