Fannie Mae, Freddie Mac won’t reduce loan limits, regulator says


The regulator for Fannie Mae and Freddie Mac said Tuesday he would not force the mortgage finance giants to reduce the limits on loans they guarantee, because of concern about the slowing housing market.

Mel Watt, who took over as director of the Federal Housing Finance Agency in January, reversed course after the agency indicated last year that it was preparing to lower the maximum mortgage size it would back.

Federal bailout recipients Fannie and Freddie play a crucial role in the housing market, purchasing or guaranteeing about 60% of new mortgages.


A reduction in the companies’ loan limits could make it harder for home buyers to get mortgages, a further blow to a market already showing signs of cooling amid higher interest rates.

In December, the agency asked for public comment on a plan to reduce the loan limit to $400,000, from $417,000, in much of the country and to $600,000, from $625,000, in Southern California and other high-cost markets.

In his first major speech Tuesday, Watt said the agency reviewed the comments and decided not to raise the loan limits.

“This decision is motivated by concerns about how such a reduction could adversely impact the current health of the housing finance market,” Watt said at a forum on the future of Fannie and Freddie hosted by the Brookings Institution think tank.

The announcement came after Watt decided in January to delay a planned fee increase by Fannie and Freddie so he could better assess the effect on the housing market.

Watt, a former Democratic congressman, has shifted course at the agency since taking over following a rough Senate confirmation battle. Watt replaced Edward J. DeMarco, a career bureaucrat appointed by President George W. Bush.

DeMarco had served as the agency’s acting director since 2009. He rejected requests by President Obama and Democrats to force Fannie and Freddie to take more aggressive steps to help homeowners facing foreclosure, particularly writing down principal on mortgages.

Most Republicans said DeMarco was protecting taxpayer money pumped into the companies, and they opposed Watt’s nomination.

Watt said Tuesday that the agency was studying principal reductions but decided there were other issues to focus on first.

“It doesn’t mean we are not considering it,” he said. “It just means we’re not ready to talk about it at this point.

The agency soon will seek public comment on the fee increases, which were set to take effect this spring, Watt said. The agency had estimated that the fees for a 30-year fixed-rate mortgage would have increased by 0.14 percentage point.

Watt praised DeMarco for his leadership of the agency, though noted there were “certain changes in focus” going forward.

The main goal for the agency is to ensure that Fannie and Freddie “operate in a safe and sound manner,” Watt said.

He said he wants the companies to maintain their efforts to support the housing market, reduce the risk to taxpayers by trying to increase the role of private capital in mortgage finance, and advance efforts to merge some key functions as a possible prelude to their shutdown.

There is broad agreement that Fannie and Freddie should be replaced, and House and Senate lawmakers are working on legislation to do that as part of an overhaul of the housing finance system.

Watt said he would not comment on the reform efforts because they are not part of his agency’s role as conservator for the seized companies.

“Congress and the administration have the important job of deciding on housing finance reform legislation, not FHFA,” he said.

Fannie and Freddie received a total of $187.5 billion in taxpayer money after they were seized in 2008 to prevent their collapse.

The housing market’s rebound dramatically improved the finances of the companies, pushing them back into profitability and allowing them to pay large quarterly dividends to the federal government for the bailout money.

Fannie and Freddie announced last week that they would pay $10.2 billion more in dividends to the Treasury after reporting first-quarter profits.

With the payments, the companies will have sent $213.1 billion in dividends to the Treasury, more than offsetting the cost of the bailout. But under the terms of the rescue, the payments do not reduce the amount of money Fannie and Freddie owe to the government.

The bailout terms were designed to prevent Fannie and Freddie, which became poster children for the housing market crash, from emerging again as private companies.