This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Fannie Mae, Freddie Mac Regulator Seeks Input on Lower Loan Limits

Stock quotes in this article: FNMA, FMCC

NEW YORK (TheStreet) -- The Federal Housing Finance Agency, regulator of bailed-out housing finance companies Fannie Mae (FNMA) and Freddie Mac (FMCC), is seeking comments on a plan to gradually reduce the size of loans that the companies purchase from lenders.

The FHFA has been contemplating reducing so-called loan limits as part of a plan to reduce the government footprint in the mortgage market and incentivize private capital to return to the market.

Lowering the loan limits would "modestly reduce Fannie Mae's and Freddie Mac's business at the high end of the market, invite private capital to re-enter the market, and limit taxpayer exposure to losses."

In areas where the statutory maximum loan limit for one-unit properties is $417,000, the plan would set the purchase limit at $400,000, a 4% decrease. The loan purchase limit will be reduced by the same percentage in other parts of the country. In high-cost areas where the loan limit is currently $625,500, the limit will drop to $600,000 under the proposal.

Fannie Mae and Freddie Mac, along with the Federal Housing Administration, now own or guarantee about 90% of the new loans originated in the country, which means changes in their policies have a big impact on the mortgage market.

Housing lobbyists fear that reducing the size of the loans purchased by Fannie and Freddie may be premature, concerned that the housing recovery is still fragile and lacking certainty that private capital will re-enter the market.

But the FHFA clarified that any modifications to loan limits will factor in public inputs. "The contemplated action is a plan and not a final decision. The requested public input will be carefully reviewed before FHFA decides whether and how to proceed with the planned approach to Freddie Mac's and Fannie Mae's loan purchase limits," the regulator said in a statement. The proposed changes will not affect loans originated before Oct 1, 2014.

Last week, the FHFA said the agencies would raise the fees charged to lenders for guaranteeing loans, known as g-fee, by an average of 11 basis points. Raising g-fees has been seen as another way to attract competition and reduce the dominance of the government-sponsored enterprises.

Still, it is unclear whether the FHFA will move forward on these recent proposals. Last week, the Senate approved the nomination of Mel Watt (D., NC) as head of the FHFA.

Watt would be the first permanent director of the regulator since 2009. Unlike the non-partisan acting director Edward DeMarco, who has been focused on contracting the market presence of the agencies, Watt as a Democrat is expected to be slower in raising g-fees or reducing loan limits and more likely to preserve the status quo.

Separately, the FHA also said recently that it would reduce loan limits in high-cost areas from $729,750 to $625,500, in a move to scale back its presence in the housing market.

-- Written by Shanthi Bharatwaj in New York.

Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,804.71 -238.19 -1.40%
S&P 500 1,946.16 -26.13 -1.32%
NASDAQ 4,422.0850 -71.3050 -1.59%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs