As 2008 began, economic indicators suggested an increased risk of recession. Federal Reserve Chairman Ben Bernanke testified before Congress that quick action was needed to stimulate the economy through targeted government spending and tax incentives. Congress moved rapidly to pass such legislation. In passing the legislation, lawmakers aimed to stimulate spending by businesses and consumers during 2008. They hoped that the targeted individual tax rebates would boost consumer spending and that targeted tax incentives would boost business spending.
Lawmakers raised the limits on conforming mortgages eligible for government insurance and GSE purchase in response to the subprime mortgage crisis. This crisis had resulted in a widespread credit crunch by late 2007. The credit crunch led to a reluctance by lenders to issue so-called jumbo mortgages for the purchase of houses that exceeded the FHA and GSE limits. The United States housing bubble had pushed house prices above those limits in many areas of the country. As interest rates rose for jumbo mortgages, fewer buyers could afford them, and house prices were being forced down toward the limits for conforming mortgages. By raising those limits, lawmakers hoped to slow or halt the decline in house prices, which threatened the financial well-being of homeowners, banks and other financial entities holding jumbo mortgages.
The FHA loan limits also went up with the stimulus package on March 6. The loan limit package is called "FHA Forward."source