UPDATE 1-Fannie Mae still pushing on investment limits -CEO

(Adds details, chief executive remarks in paragraphs 4-11)

By Patrick Rucker

WASHINGTON, Sept 12 (Reuters) - Fannie Mae (FNM.N) is still pushing its regulator to lift the mortgage finance company's investment limits so that it can buy more home loans and add stability to the market, the company's chief executive said on Wednesday.

The regulator for Fannie Mae and its cousin, Freddie Mac (FRE.N), has ordered to companies to freeze their investment portfolio of mortgages at its current level of about $1.4 trillion. The regulator, the Office of Federal Housing Enterprise Oversight, has rejected the companies' request to grow their holdings but Daniel Mudd, Fannie Mae's CEO, said his company is still seeking an increase.

"We're still continuing discussions. I don't have anything to announce to you today but we hope to get to the place where we can do more," Mudd told reporters after addressing a conference of the National Association of Federal Credit Unions.

In May 2006, Fannie Mae agreed to freeze its investment holdings in the wake of an accounting scandal that led to a $6.3 billion restatement of past earnings in December.

Under the agreement with OFHEO, Fannie agreed to freeze its investment holdings until it completed a series of remedial steps to make the company more safe and sound.

Under terms of the agreement, James Lockhart, the OFHEO director, may waive the investment limit to address "market liquidity issues" or "other relevant information."

On Wednesday, Mudd said the mortgage market is facing a liquidity crisis today as investors shun home loan investments and lending standards have tightened. While Fannie has not met all its remedial requirements, turmoil in the mortgage market might mean the regulator should loosen restrictions on the company, Mudd said.

"We have made a lot of improvement and I think the debate should be around whether that improvement is enough to do some more business in this time," Mudd said.

For years, lawmakers have debated a new regulatory structure for Fannie Mae and Freddie Mac, government-sponsored enterprises that hold federal charters to promote home ownership. The House of Representatives has passed a reform measure and the Senate Banking Committee is due to debate the issue but Mudd said the regulator might be needed to take action before lawmakers.

"That is an ongoing discussion about having the right regulatory regime in place. I think there is increasing agreement about that. The question is: Is there time? There is something more imminent that has happened here which goes to the questions about liquidity and the questions about loan limits," Mudd said.

The companies' allies in Washington have argued that the investment caps should be lifted and that Fannie and Freddie should be permitted to buy loans valued at more than $417,000 - the current loan size limit.