Walt McDonald, president of the National Association of Realtors, said in a letter sent to members of the Housing and Community Opportunity Subcommittee of the U.S. House Financial Services Committee that Congress should raise the limits on FHA loans in high-cost areas.

McDonald wrote in support of the FHA Single Family Loan Limit Adjustment Act of 2004, H.R. 4110, which was introduced earlier this year by U.S. Reps. Gary Miller (R-Calif.) and Barney Frank (D-Mass.) and is strongly backed by the National Association of Realtors. The bill would increase FHA loan limits for single-family homes in high-cost areas like California, Connecticut, New Jersey, New York and Massachusetts and would allow FHA loan limits to rise to the local area median-home price, providing more housing opportunities for families living in high-cost areas.

"Working families who need and qualify for FHA loans should not be penalized because of their geographic location. This legislation will correct this disparity and make FHA mortgages available to more prospective homebuyers nationwide regardless of where they live," McDonald said in the letter.

The FHA's single-family mortgage insurance program is a financially sound, national mortgage insurance program that plays a major role in making available homeownership opportunities in all markets at all times. However, it is not a useful product in high-cost areas of the country because its maximum loan limits are too restrictive. As a result, working families such as those of teachers, police officers and firefighters are unable to find and purchase housing in the communities where they work, McDonald said in the statement submitted for the record.

FHA's maximum loan limit is capped at 87 percent of Freddie Mac's conforming loan limit, which results in an FHA ceiling of $290,319 this year. However, the 2003 median home price was $364,040 in California and $353,000 across the New York­New Jersey­Connecticut­Massachusetts area, with much higher costs in specific cities.

Several years ago, Congress authorized FHA mortgages to increase up to 150 percent of the ceiling in Alaska, Hawaii, Guam and the U.S. Virgin Islands, for a 2004 loan limit of $435,479. Other high-cost states should be afforded the same consideration. This bill would eliminate the current loan ceiling and allow FHA limits to rise to the median home price in each locality.

Realtors told the committee that the current loan limits force prospective buyers to look for housing farther away from employment centers. Workers who may only qualify under FHA guidelines and are restricted by the current loan limits are having to commute long distances every morning and evening because they can't afford to live in certain high-cost areas.

Information provided in this column is presented by the Realtor members of the Silicon Valley Association of Realtors at www.silvar.org. Send questions on any topic to jnewton@jnpr.com.