Large Mortgages to Continue at Fannie and Freddie – For Now

Federal regulators overseeing Fannie Mae and Freddie Mac announced they will allow the mortgage giants to continue funding higher-priced loans into next year. The Thursday decision surprised many industry observers, who had expected the government to shrink Fannie and Freddie’s footprint in the mortgage market as soon as next month.

Last summer, President Barack Obama ordered the Federal Housing Finance Agency(FHFA) to put together a plan to reduce the maximum size of mortgage loans eligible for backing by Fannie Mae and Freddie Mac. The plan was designed to wean the housing market off government support and spur private lenders to take a larger role in mortgage lending. 

The move faced fierce opposition from those in the real estate industry, who said reducing lending by Fannie and Freddie would hurt the housing recovery.  

“It would be counterproductive to make changes to the loan limits before private capital is fully engaged,” said Gary Thomas, president of the National Association of Realtors.

Now, the government seems to agree.

Ed DeMarco, the FHFA acting director, announced the agency is holding off on changes to Fannie and Freddie lending practices.

“We are not making a change there in the immediate term,” DeMarco told reporters.

He also said the FHFA would revisit the matter next year, and did not rule out a drop in loan limits in the second half of 2014.

“My view that it is a legitimate tool has not changed,” DeMarco said.

Government officials clearly give some credence to the idea that housing is still too fragile to reduce the role of Fannie and Freddie. Falling home sales over the summer probably got the attention of senior administration officials.

There is also the matter of capital: too few private investors are willing to enter the mortgage business, making Fannie and Freddie pretty much the only game in town, at least for the time being.

After the capital destruction witnessed in 2008, private firms are no doubt mindful of the phrase “once bitten, twice shy.”