Fannie, Freddie Shouldn't Add Risk, Regulator Says

WASHINGTON (Reuters) - U.S. mortgage finance giants Fannie Mae (FNM.N: Quote, Profile, Research, Stock Buzz) and Freddie Mac (FRE.N: Quote, Profile, Research, Stock Buzz) should not take on additional risk by financing bigger home loans than they are permitted to now, their federal regulator said on Monday.

"We think that they shouldn't take on significantly new risk, especially ones like jumbo risk that they're not familiar with," said James Lockhart, director of the Office of Federal Housing Enterprise Oversight, in an interview on CNBC television.

The two companies have enough flexibility to provide liquidity to subprime mortgage markets, Lockhart said.

Markets for jumbo mortgages -- ones over $417,000 -- are already "self-correcting" and differences between borrowing costs for jumbo loans and ones Fannie Mae and Freddie Mac are allowed to buy are narrowing, Lockhart said.

"If anything is done on raising the conforming loan limit, it should be done on a temporary basis, and most importantly, it should be done on a comprehensive regulatory reform for the housing government-sponsored enterprises," he said.