Fannie Mae Home-Loan Limits to Remain Unchanged in Early 2014

Fannie Mae and Freddie Mac will continue to buy U.S. home loans of as much as $417,000 in most areas at the beginning of 2014, unchanged from the current year’s limit, the companies’ regulator said.

In high-cost areas, such as New York, Los Angeles and Washington, the upper limit will remain at $625,500, the Federal Housing Finance Agency said today.

The FHFA may reduce the maximum size of mortgages the two government-owned companies can purchase in the middle of 2014, as part of an effort to shrink their footprint in the mortgage market. The FHFA will give six months’ notice before making any changes, the agency’s acting director, Edward J. DeMarco, said in October.

More information on “potential future changes in the maximum size of loans that Fannie Mae and Freddie Mac (FMCC) guarantee will be forthcoming,” the agency said in a statement today.

DeMarco may be replaced next year by U.S. Representative Mel Watt, a Democrat from North Carolina who could be confirmed to the job by the Senate in December. Watt has not said publicly whether he believes loan limits should be reduced.

Fannie Mae and Freddie Mac buy about two-thirds of new home loans and package them into securities on which they guarantee payments of principal and interest.

Lowering loan limits could make borrowing more costly for some home buyers. Mortgages eligible for purchase by Fannie Mae and Freddie Mac, known as conforming loans, are generally less expensive than larger loans known as jumbos because the government would absorb the cost of default.

President Barack Obama called for a decrease in loan limits in August, citing the government’s outsized footprint in the housing market.

Trade groups including the National Organization of Realtors, the National Association of Homebuilders, and the Mortgage Bankers Association have been asking that the limits be kept at current levels.

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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