The Loan Limits for Government-Backed Mortgages (CRS Report for Congress)
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| Release Date |
Revised June 9, 2022 |
| Report Number |
R44826 |
| Report Type |
Report |
| Authors |
N. Eric Weiss; Katie Jones; Libby Perl; Tadlock Cowan |
| Source Agency |
Congressional Research Service |
| Older Revisions |
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Summary:
The federal government supports homeownership in different ways. One of the main ways is
through programs or quasi-government entities that promise lenders or investors that if a
homeowner defaults on a covered mortgage, the lender or investor will still receive some—or
all—of the amount it was owed. In some cases, the guarantees support homeownership by making
private lenders more willing to offer certain types of mortgages. In other cases, the guarantees
provided by these entities may increase the number of private investors who are willing to invest
in mortgages, thereby increasing the amount of capital available for mortgage lending. The details
of the programs differ, but most have maximum guarantee amounts that limit the size of
mortgages that are eligible. This report contains brief program descriptions and discusses the
maximum guarantee amounts for each.
The government or quasi-government entities that insure or guarantee mortgages and are
discussed in this report are the following:
Fannie Mae and Freddie Mac. Lenders sell mortgages to Fannie Mae and
Freddie Mac, which are congressionally chartered government-sponsored
enterprises (GSEs). These mortgages are called conforming loans because they
conform to Fannie Mae’s and Freddie Mac’s credit rules and are less than the
conforming loan limit.
The Federal Housing Administration (FHA). The FHA insures mortgages that
meet its standards, including a maximum mortgage amount. If a homeowner
defaults, FHA pays the lender the remaining amount owed on the mortgage.
The Department of Veterans Affairs (VA). The VA guarantees mortgages made
to eligible veterans who meet its standards. If a covered veteran defaults, the VA
will pay the lender. Unlike the first two programs, the VA coverage is not always
100% of the unpaid balance.
The U.S. Department of Agriculture’s Rural Housing Service (RHS). RHS
provides direct loans and loan guarantees for certain home mortgages in rural
areas. RHS does not have a maximum mortgage size, but does have limits on
income and the value of the home purchased.
Mortgage guarantee programs transfer risk to the government from the private sector, but may
also expand credit availability and lower rates for borrowers. Loan limits for mortgages that are
eligible for the programs attempt to achieve a balance by limiting the size of the mortgages that
are guaranteed or insured, in part to limit the amount of risk that is transferred from the lender to
the federal government and also to tailor the programs to the borrowers to whom the government
would like to provide assistance. The size of the loan limits may affect which homes, and by
extension which prospective homebuyers, can qualify for these types of mortgages. To the extent
that these types of mortgages represent the most affordable or only available mortgage option for
some prospective homebuyers, any increase or decrease in the loan limits can affect access to
mortgage credit for a subset of potential homebuyers.
