Fannie Mae, Freddie Mac Loan Limits to Remain Unchanged in 2013

U.S. home-price gains this year weren’t large enough to justify an increase in the maximum size of loans that Fannie Mae and Freddie Mac (FMCC) will purchase in 2013, the companies’ regulator said today.

The two government-owned companies will continue to purchase loans up to a maximum of $417,000 in most areas next year, the same as the current year’s limit. In high-cost areas, such as Los Angeles and Washington, D.C., the upper limit will remain at $625,500, the Federal Housing Finance Agency said.

Home-price gains averaging between 4 and 4.4 percent nationally were not enough to offset a 19 percent decline in home prices through 2011, the agency said. Federal law governing the two companies requires that prior price declines are offset before an increase can occur.

Fannie Mae (FNMA) and Freddie Mac provide liquidity to the housing market by purchasing mortgages and packaging them into securities on which they guarantee payments of principal and interest. That frees up banks to make new loans.

The ceiling that the two government-sponsored enterprises set for the loans they will purchase effectively caps the size of most U.S. mortgages because banks are reluctant to make loans they can’t sell. Fannie Mae and Freddie Mac now back about two- thirds of home loans.

The limits for loans purchased by Fannie Mae and Freddie Mac will remain lower than the limits insured by the Federal Housing Administration for a second year.

Under pressure from the real-estate industry, Congress last year raised the maximum size of mortgages backed by the FHA to $729,750, from $625,500, through 2013. Lawmakers didn’t enact higher limits for the government-owned companies at the same time.

Fannie Mae and Freddie Mac have been operating under U.S. conservatorship since September 2008, when investments in risky loans pushed them to the brink of bankruptcy.

To contact the reporter on this story: Clea Benson in Washington at cbenson20@bloomberg.net

To contact the editor responsible for this story: Maura Reynolds at mreynolds34@bloomberg.net

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