By Margaret Chadbourn
WASHINGTON (Reuters) - Two powerful housing industry trade groups are asking U.S. lawmakers to prevent a government regulator from lowering the limit on the size of loans Fannie Mae and Freddie Mac can back, according to a letter obtained by Reuters on Friday.
In a letter to both Democrats and Republicans in the House of Representatives, the National Association of Realtors and the National Association of Home Builders said a reduction in the loan limits could result in "confusion and uncertainty" for potential borrowers and lenders.
This, in turn, could threaten a budding housing rebound and hurt the broader economic recovery just as it gains traction, they argued.
"Our nation's housing market is still on the path to recovery. While there has been some return of private mortgage lending, without the benefit of a federal guarantee, it remains limited and available only to the most highly qualified borrowers," the letter said.
The Federal Housing Finance Agency wants to reduce the so-called conforming loan limits by the start of next year to shrink Fannie Mae and Freddie Mac's presence in the market and expand the role of private capital in mortgage finance.
But the two trade groups said the FHFA, which declined to comment on the letter, lacks the authority to lower the cap on the size of loans the government-owned mortgage finance giants can guarantee.
Government-insured mortgages now dominate the housing sector, supporting about nine out of 10 new home loans.
"FHFA Acting Director (Edward) DeMarco appears to be making decisions above and beyond this authority provided by Congress and may significantly damage local housing markets," the letter said.
The loan limits are based on local median house prices and vary by metro area. In most markets, Fannie Mae and Freddie Mac cannot back loans of more than $417,000, although the cap can be as high as $625,500 in pricier areas such as New York City and $721,050 in Hawaii.
The two trade groups want more House of Representatives members to sign a letter opposing the proposed cap written by Democrats Carolyn Maloney and Brad Sherman and Republican Gary Miller.
(Reporting by Margaret Chadbourn; Editing by Krista Hughes)