Jan. 9 (Bloomberg) -- President-elect Barack Obama agreed with House Democrats to increase the limit on loans Fannie Mae and Freddie Mac can purchase to $729,750 in high-cost areas, House Financial Services Chairman Barney Frank said.

“We got the approval from the Obama administration,” Frank, a Massachusetts Democrat, said at a hearing today on the Federal Housing Administration. The change would also apply to loans insured by that agency.

The loan limits, which were temporarily raised last year from $417,000 to $729,750, fell to $625,500 on Jan. 1 for the most expensive real estate markets. The limit on so-called conforming loans everywhere else remains at $417,000 in 2009.

“Keeping the loan limits at last year’s levels this year so we can then think about what we do going forward will be in the economic recovery program for FHA, Fannie Mae and Freddie Mac,” Frank said.

Frank told reporters after the hearing that Congress will not release the second half of the Treasury Department’s $700 billion Troubled Asset Relief Program unless it provides up to $100 billion for foreclosure prevention. An outline of legislation directing Treasury how to spend the remaining $350 billion requires the regulator to set aside at least $50 billion for borrowers at risk of losing their homes. Frank released a draft of his bill today.

“This is great news for consumers,” said Lawrence Yun, chief economist of the National Association of Realtors in Washington. “More people will have access to historically low mortgage rates. Currently the market that’s particularly stalled is on the high end, so this would begin to loosen that market up.”

Using Fannie, Freddie

Frank also said he expects the Treasury to “use Fannie and Freddie” more to bolster home lending.

Washington-based Fannie and McLean, Virginia-based Freddie were taken over Sept. 6 after regulators found that the government-sponsored enterprises were at risk of failing. The two remain the largest sources of money for U.S. home loans. The companies own or guarantee about $5.2 trillion of the $12 trillion in home loans outstanding.

“We’re not here mandating mortgage rates,” Frank said. “All we can do is raise the loan limits.” He said he has encouraged the Treasury to flesh out a plan to use the GSEs to further drive down mortgage rates.

To contact the reporters on this story: Dawn Kopecki in Washington at dkopecki@bloomberg.net; To contact the reporter on this story: Alison Vekshin in Washington at avekshin@bloomberg.net;

Last Updated: January 9, 2009 15:27 EST