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Agencies Lift Home Buyer Loan Limits : Freddie Mac, FNMA Action to Benefit State's Residents

December 21, 1986|DAVID W. MYERS

About 66,000 California home buyers will find it easier to get a fixed-rate mortgage next year, now that two government-related housing agencies have agreed to raise the limits on the size of loans they buy from lenders.

The Federal National Mortgage Assn., commonly called Fannie Mae, and the Federal Home Loan Mortgage Corp., or Freddie Mac, have announced they will begin buying loans as large as $153,100 on Jan. 1. Their current limit is $123,250.

Fannie Mae and Freddie Mac play key roles in making more mortgage money available to American home buyers. Both corporations purchase mortgages from lenders and use them as collateral for securities that they sell to investors. This process gives banks and savings and loan associations the cash they need to make new loans.

The two agencies have increased the size of the loans they buy each year since 1980, in an effort to keep up with overall increases in home prices.

Critics of Raising Limit

But some lenders wanted to prevent the proposed 1987 increase, saying that the two entities are "crowding out" private-sector firms that either make loans or perform duties similar to those of Fannie Mae and Freddie Mac.

Critics also said such increases help relatively affluent home buyers, even though the two organizations were formed by Congress to aid low- and moderate-income borrowers.

Supporters of the increase said it is needed to keep Fannie Mae and Freddie Mac active in states where home prices have skyrocketed, such as California, New York and most of the New England states. Some claimed that lenders who opposed the increase were simply trying to "force" adjustable-rate mortgages on a public that favors fixed-rate loans because borrowers would have had a tougher time getting fixed-rate loans for more than $133,250 if the increase had not been enacted.

Supporters also said interest rates on large loans would have risen if the increase had not been allowed because rates on loans above Fannie Mae and Freddie Mac limits are about one percentage point higher than rates on loans that are under the limits.

Helps Californians

"The increase is a real victory for home buyers in California and other states where houses are more expensive than the national average," said Jack Paulson, a San Jose broker and next year's president of the California Assn. of Realtors.

"Without the increase, a lot of people looking for a loan of more than $133,250 would have been forced to take an adjustable loan--if they could get a loan at all."

The CAR economics staff estimates that the increase will allow an additional 66,000 Californians to get a Fannie Mae loan next year. Nationwide, about 200,000 home buyers will benefit from the increase, according to the Mortgage Bankers Assn. of America.

But even though the loan limits are rising, the battle over the future role Fannie Mae and Freddie Mac will play in the nation's housing market may only be beginning.

Concerns About Calculations

Although Fannie Mae officials were adamantly opposed to freezing the loan limit, Freddie Mac--which is actually owned by lenders themselves--has lent a more sympathetic ear to the banking community.

In a statement announcing the loan-limit increase, Freddie Mac's board of directors said it "shares concerns" about the way the annual raise is calculated.

The directors also urged Congress to review the role of the two agencies next year.

Some observers expect lenders and some Wall Street concerns to step up their attempts to curb Fannie Mae and Freddie Mac's activities in 1987. The Reagan Administration already has proposed changes that could hurt the two agencies' mortgage-making abilities.

The House Banking Committee is expected to hold hearings on the secondary mortgage market--including the roles of Fannie Mae and Freddie Mac--early next year.

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