Saying he doesn’t want to derail legislation intended to strengthen oversight of Fannie Mae and Freddie Mac, Rep. Barney Frank said Thursday he will introduce a bill raising limits on the mortgage repurchasers’ loan portfolios — but only for six months.

The Massachusetts Democrat said the government-sponsored entities (GSEs) would be required to use 85 percent of the increase to buy up mortgages that would be used to refinance subprime borrowers out of risky loans.

Caps that currently limit Fannie and Freddie’s loan portfolios to $1.46 trillion have been a subject of debate that’s prevented Congress from passing so-called GSE reform legislation.

While the Bush administration has generally opposed raising Fannie and Freddie’s portfolio caps, many Democrats say giving the GSEs more leeway to buy more loans in the secondary market would help ease a credit crunch in mortgage lending.

Portfolio caps are just one aspect of GSE reform legislation that Congress has long debated in the wake of accounting and management scandals that forced Fannie and Freddie to restate several years of earnings and pay millions in fines to regulators.

A GSE reform bill passed by the House in May would create a new federal regulator for Fannie and Freddie, the Federal Housing Finance Agency, a goal supported by Democrats and Republicans alike. But how much power the new regulator will be given over the GSEs’ loan portfolios remains a matter of debate that stymied Senate passage of similar legislation in 2006.

Frank said in a statement that he continues to believe “that it is very important that we pass a comprehensive GSE bill, and I hope that the Senate will soon be able to act on this matter.”

Charles Schumer, D-N.Y., will introduce similar legislation in the Senate to allow a temporary, six-month increase in Fannie and Freddie’s loan portfolios while debate over GSE reform continues, Frank said.

Frank had refused to support previous legislation by Schumer that called for a one-year, 10 percent increase in the GSEs’ loan portfolios because it could have been seen “as lessening the need for overall (GSE reform) legislation in the minds of some,” he said.

Another area of debate to be resolved is whether to raise the $417,000 conforming loan limit.

The GSE reform bill approved by the House in May, HR 1427, would allow Fannie and Freddie to securitize loans of up to $625,000 in areas where the median home price exceeds the conforming loan limit. The bill left the $417,000 conforming loan limit in place, however, meaning the GSEs would not be able to buy larger loans to hold in their own investment portfolios.

Frank has since said he regrets that the bill did not legislate an increase in the conforming loan limit, and has urged the Senate to do so in its version of a GSE reform bill.

Not all Democrats agree. At an Oct. 3 press conference, Democratic leaders urged Bush to raise caps on the GSEs’ loan portfolios but were silent on the issue of the conforming loan limit.

Some critics say raising the conforming loan limit would move Fannie and Freddie away from their original purpose — helping low- and moderate-income families obtain affordable mortgage loans.

Although the Bush administration has opposed raising the conforming loan limit before passage of a GSE reform bill, administration officials have said they would consider allowing the GSEs to guarantee and securitize such loans on a temporary basis because private investors have cut back on secondary market purchases of jumbo loans.

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