Fannie, Freddie home loan limits to hold steady in 2014

Reuters

* $417,000 will remain the limit in most areas for now

* Regulator mulled lowering cap to curb gov't housing role

* Nominee for housing post seen less eager to pull back

By Margaret Chadbourn

WASHINGTON, Nov 26 (Reuters) - The maximum size of U.S. homeloans that taxpayer-owned Fannie Mae and Freddie Mac can buy will hold steady next year, their regulatorsaid on Tuesday, deferring a decision on when to pull backgovernment support for the housing market.

The mortgage financiers will continue to purchase loans upto a maximum of $417,000 in most areas, the Federal HousingFinance Agency said. In more expensive markets, such as LosAngeles and New York, the cap will remain at $625,500.

The limits were raised in 2008 to help keep the mortgagemarket liquid during the financial crisis, and the agency hadbegun to consider lowering them as the housing market recoveredto allow private capital to support more home loans.

Last month, it said any changes would be phased in andannounced six months before they were implemented to avoideconomic disruptions.

In announcing its decision on Tuesday, the FHFA said thehousing market was not showing enough strength to warrantlowering the limits now. It is expected to wait until sometimenext year before deciding on any future reduction.

Some housing industry leaders and lawmakers have expressedconcern that reducing the limits could shut out buyers andimpede the housing recovery. Investors might not be willing totake the risk of buying mortgage-backed securities without agovernment guarantee, they cautioned.

Analysts, however, say a decrease would affect only a sliverof the market, about 2 to 3 percent.

"The housing market isn't going to flourish because of thisannouncement, but in some markets this eliminates a threat for2014," said Jaret Seiberg, a senior policy analyst at GuggenheimSecurities. "This is broadly positive for housing, but it's notthe secret cure that's going to give us a healthy market."

Fannie Mae and Freddie Mac, which were seized by thegovernment at the height of the financial crisis, do not makeloans. They purchase mortgages from lenders, which they eitherkeep on their books or bundle into securities that they offer toinvestors with a guarantee. They currently back about two-thirdsof new U.S. home loans.

FHFA Acting Director Edward DeMarco wants to wean thehousing finance system off this dependence on the government,but Representative Mel Watt, nominated by President Barack Obamaas the next head of the agency, is expected to move cautiously.

Seiberg said the North Carolina Democrat, who could beconfirmed in the post by the Senate as early as next month, wasnot as prepared as the staff at the FHFA to lower the limits.

"Government policies continue to constrain credit more thaneconomic conditions warrant and the result is the housing marketis less robust than should it should be," said Seiberg.

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