WASHINGTON Dec 16 The U.S. government could
reduce its support for high-cost mortgages as soon as October of
next year, a top regulator said on Monday in a statement that
amounted to a show of confidence in the housing recovery.
The regulator for taxpayer-owned Fannie Mae and
Freddie Mac 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 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
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
The regulator said it will seek public comment before
implementing the plan. If adopted, the plan "will not affect
loans originated before Oct. 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.
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
The FHFA said it was seeking public input on its proposal
that "will inform its decision-making and ensure any change
minimizes market disruptions."
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 loans.