Will FHA Be the Go-To Source for High-Cost Mortgages?

The Federal Housing Administration looks poised to replace Fannie Mae and Freddie Mac as the primary government lender of relatively high-cost mortgages.

The government recently passed a bill that extended the agency's conforming loan limit to $729,750 in the country's most expensive neighborhoods, while keeping Fannie Mae and Freddie Mac's ceiling at $625,500, the level to which it fell after Congress allowed a previous $729,750 loan limit to expire on Oct. 1. This probably means that relatively well-off homebuyers will increasingly turn to the FHA in order to help finance mortgages in high-cost areas, concludes columnist Kenneth R. Harney.

The decision by Congress to raise loan limits solely for FHA-insured loans, and not for Fannie Mae or Freddie Mac-backed loans, reflects the government's growing displeasure with the two mortgage giants (which back roughly half of all mortgages in the U.S.) and its desire to reduce their role in the housing market.