Fannie, Freddie set to reduce maximum loan sizes

|About: Fannie Mae (FNMA)|By:, SA News Editor

Trying to cut the government's role in the mortgage market - but sure to face plenty of opposition from Congress and industry - the FHFA is preparing to reduce the maximum size of home mortgage loans eligible for backing by Fannie Mae (FNMA.OB -0.8%) and Freddie Mac (FMCC.OB -0.9%). Currently Frannie has a $417K limit in most parts of the country, but $625K in some expensive housing markets, and up to $721K in Hawaii.

The amounts these limits will be dropped is not yet known, but the plan is set to take effect at the start of next year. The FHFA says it doesn't need congressional approval, but the NAR is already in a huff. "A lot of people who talk about having more private capital, they're not ready to walk the walk," says FBR's Paul Miller.

Maybe showing the absurdity of the position of those refusing to be weaned off Frannie, borrowing rates for non-conforming or jumbo loans actually dropped below those for conforming last week as banks - flush with cash looking for a return - compete to lend money.