Washington could cut Fannie, Freddie home loan limits in 2014

WASHINGTON Mon Dec 16, 2013 4:33pm EST

WASHINGTON Dec 16 (Reuters) - The U.S. government said on Monday it could reduce its support for high-cost mortgages as soon as October of next year, a sign of confidence in the recovery of the American housing market.

The regulator for taxpayer-owned Fannie Mae and Freddie Mac unveiled a plan in which the two mortgage finance giants would gradually reduce the maximum size of U.S. home loans they buy.

Because the government guarantees the loans bought by the two firms, the move would amount to dialing back the heavy support Washington provides the mortgage market.

"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 statement.

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.