The Bush administration is proposing to increase loan limits on Federal Housing Administration single-family loans so that FHA is not shut out of high-cost areas of California and Massachusetts.The legislative proposal would increase the FHA loan limit in high-cost areas to $417,000 -- which is the conforming loan limit on Fannie Mae and Freddie Mac loan purchases. Currently, the ceiling for FHA loans is $362,790 in high-cost areas and the floor is $200,160. The legislation proposal the Department of Housing and Urban Department sent to Capitol Hill raises the floor to $271,050 or 65% of the conforming loan limit. The legislative proposal also allows FHA to charge risk-based premiums so it can price its mortgage insurance based on the borrowers' credit score and loan-to-value ratio. HUD secretary Alphonso Jackson told the House Financial Services Committee this pricing flexibility would allow FHA to offer lower-cost mortgages to borrowers who are currently paying excessively high interest rates on subprime loans. FHA reform is a "top legislative priority for me this year," he said.

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