Federal regulators are considering a reduction in the size of mortgages that can be backed by Fannie Mae and Freddie Mac. The change could kick in at the start of the new year, according to the Federal Housing Finance Agency.
“FHFA has been analyzing approaches for reducing Fannie Mae and Freddie Mac loan limits across the country, and any such change would be announced with adequate advance notice for implementation on Jan. 1," the regulator said in a statement Monday.
The maximum limit for loans backed by Fannie and Freddie is currently $417,000 in much of the country and up to $625,500 in more expensive areas, according to a Los Angeles Times report. The FHFA did not specify what the proposed new limits would be.
The move comes amid rumblings in Congress that Fannie and Freddie need to be overhauled, if not killed off entirely. Two plans to dismantle the mortgage giants are currently before lawmakers. President Barack Obama supports a Senate bill introduced by Bob Corker (R-Tenn.) and Mark Warner (D-Va.) that would replace Fannie Mae and Freddie Mac with a new government insurer as part of a new mortgage system in which private capital would be required to take at least 10 percent of first losses on mortgage securities before the government stepped in.
House Republicans, however, support the Protecting American Taxpayers and Homeowners (PATH) Act, which passed the Financial Services Committee in July without Democratic support. The PATH Act would essentially privatize home finance entirely, dismantling Fannie and Freddie without providing a replacement.
“It doesn't matter if it's Fannie Mae and Freddie Mac or a new entity that serves a similar function - if the government is providing that backing it will crowd out the private sector and again put taxpayers on the hook for Washington's failed policies,” Republicans wrote last month in a blog post on the House Financial Services Committee website. “That is not reform - it's the status quo with new packaging.”
While the overhaul or elimination of Fannie and Freddie would require congressional action, however, FHFA could lower the maximum loan rate on its own authority.