The regulator for taxpayer-owned Fannie Mae <FNMA.OB> and Freddie
Mac <FMCC.OB> unveiled a plan in which the two mortgage finance
giants would have to gradually reduce the maximum size of U.S. home
loans they can buy.
Because the government guarantees the loans bought by the two firms,
the move would dial back the heavy support Washington provides the
"Setting reduced loan purchase limits furthers the goal of
contracting the market presence of Fannie Mae and Freddie Mac
gradually over time," the Federal Housing Finance Agency said in a
The FHFA said it could reduce the loan limit to $600,000 from
$625,500 in the nation's highest-cost areas, which include cities
like Los Angeles, New York and Washington. The limit would drop in
much of the rest of the country to $400,000 from $417,000.
The regulator said it will seek public comment before implementing
the plan. If adopted, the plan "will not affect loans originated
before October 1, 2014," the FHFA said.
The U.S. housing market imploded during the 2007-2009 recession but
has turned a corner over the last year, supported by the Federal
Reserve's low interest rate policies and by a taxpayer backstop for
most of the mortgage market.
The loan limits were raised in 2008 to help keep the market liquid
during the financial crisis, and the regulator had begun to consider
lowering them as the housing market recovered as a way to open up
more space for private capital.
Some housing industry leaders and lawmakers have expressed concern
that reducing the limits could shut out buyers and impede the
housing recovery. Investors might not be willing to take the risk of
buying mortgage-backed securities without a government guarantee,
they have cautioned.
[to top of second column]
But Washington appears generally uneasy with its massive footprint
in the housing market. The regulator noted in its statement that
President Barack Obama had asked it to reduce the loan limits.
The FHFA said it was seeking public input on its proposal that "will
inform its decision-making and ensure any change minimizes market
Fannie Mae and Freddie Mac, which were seized by the government at
the height of the financial crisis, do not make loans. They purchase
mortgages from lenders, which they either keep on their books or
bundle into securities that they offer to investors with a
guarantee. They currently back about two-thirds of new U.S. home
(Reporting by Jason Lange; editing by
Dan Grebler and David Gregorio)
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