U.S. Firms Will Increase Size of Loan Limits

Fannie Mae and the Federal Home Loan Mortgage Corp. said Wednesday that they will increase the limit on the size of mortgages they will buy in 1997 by 4%, to $214,600 from $207,000.

The two enterprises’ government charter requires them to base their single-family mortgage purchase limits on an index of home prices put out by the Federal Housing Finance Board. The value of that index went down in 1993 and 1994. This year, the index rose 8%, which reflects the steady increase in the value of U.S. homes during much of the year.

Increased limits could help more consumers obtain mortgages because more mortgages would be eligible to be purchased by the two companies. Fannie Mae--the Federal National Mortgage Assn.--and the Federal Home Loan Mortgage Corp., also known as Freddie Mac, make their profits and help keep the mortgage market liquid by purchasing mortgages from banks and other original lenders.

“This increases their access [to mortgages], but their access is already quite substantial,” said Jonathan Gray, who follows the two companies for Sanford C. Bernstein & Co.

The two mortgage giants have access to roughly 70% to 75% of all new U.S. mortgages, Gray said.

For the first time, the two companies compensated for the drops in the housing price index that occurred in 1992 and 1994 as they adjusted their loan limits. In the past, the government-sponsored enterprises adjusted the limit only for increases.

Any increase in loan limits could bring criticism that Fannie and Freddie, which are supposed to help make it easier for low- and middle-income people to obtain mortgages, are subsidizing upper-income home buyers.

The average price for a single-family home in the U.S. in October was $156,800, according to the FHFB index, up from $144,600 in October 1995.