A $150 billion economic stimulus plan being negotiated by the Bush administration and congressional leaders could include a temporary boost in the $417,000 conforming loan limit on mortgages eligible for purchase or guarantee by Fannie Mae and Freddie Mac.

The government-sponsored enterprises, or GSEs, may soon be allowed to back loans up to $625,000 nationwide and $700,000 or more in high-cost areas, according to published reports on the negotiations.

The Bush administration had previously tied any increase to the conforming loan limit to tighter regulatory oversight of Fannie and Freddie, where accounting scandals led both companies to fire top managers and restate several years of earnings.

Congress has been deadlocked on legislation overhauling oversight of Fannie and Freddie for several years, in part because of a separate debate over limits on growth in the companies’ combined $1.5 trillion loan portfolios.

The Associated Press reported that House leaders of both parties have agreed to increase the conforming loan limit to $625,000 for one year, although Senate lawmakers and the Bush administration had not signed off on the idea.

Some Senate Democrats had been pushing for an even larger increase in the conforming loan limit in high-cost areas like California and Florida.

A Treasury Department spokeswoman told Reuters today that the administration still sees an increase in the conforming loan limit as tied to GSE reform.

The Bush administration may be seeking a compromise that would allow the smaller, temporary increase in the conforming loan limit agreed to by House leaders if Senate Democrats agree to move forward with a GSE reform bill.

The House of Representatives passed a GSE reform bill in May, HR 1427, that would create an independent agency to oversee Fannie and Freddie. That bill would permit the companies to guarantee and resell loans of up to $625,000 in high-cost housing markets, but not hold them in their own investment portfolios.

A companion bill has yet to be introduced in the Senate. The influential chair of the Senate Banking Committee, Sen. Chris Dodd, D-Conn., supports raising the conforming loan limit but also wants the stimulus plan to include other programs targeted at foreclosure relief (see Inman News story).

The economic stimulus plan agreed to by House leaders would provide $100 billion in tax rebates for individuals and $50 billion in tax incentives for businesses, but does not provide funding for housing efforts advocated by Dodd. Senate Majority Leader Harry Reid said he hopes to get a bill on the president’s desk by Feb. 15, AP reported.

So-called “jumbo” loans that exceed the conforming loan limit have become more expensive and harder to find since August. Wall Street investors have drastically scaled back purchases of securities that had been a primary source of funding for jumbo, alt-A and subprime loans because of fears about rising defaults and falling home prices.

In states like California and Florida, where the median home price in some markets far exceeds the conforming loan limit, the increased cost and reduced availability of jumbo loans has been blamed for worsening the housing downturn.

The National Association of Realtors maintains that raising the conforming loan limit to $625,000 would prevent 140,000 to 210,000 foreclosures, bolster home prices by 2 to 3 percentage points, and increase economic activity by $42 billion (see story).

California Gov. Arnold Schwarzenegger this week urged Congress to pass legislation to raise the conforming loan limit to $625,000 in high-cost housing markets, saying about half of all home purchases in the state require mortgages that exceed the current limit.

Some critics say increasing the conforming loan limit could detract from Fannie and Freddie’s mission of helping low- and moderate-income families, and that the GSEs already face considerable risk from the housing downturn.

Analysts at Credit Suisse Group this week warned that Fannie and Freddie may report as much as $16 billion in fourth-quarter write-downs tied to the declining value of securities backed by subprime mortgage loans. The problem is more pronounced at Freddie Mac, which could be forced to declare $11 billion in write-downs, Credit Suisse analysts predicted.

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