Treasury Secretary Henry Paulson announced Monday that he
was in favor of temporarily lifting the dollar limit on loans
purchased by Freddie Mac and Fannie Mae, allowing them to provide a market for
so-called "jumbo mortgages."
Under current rules, the two government sponsored enterprises (GSEs) cannot
purchase loans that exceed $417,000.
Paulson is advocating that this limit be lifted and appeared not to disagree
with earlier suggestions by Federal Reserve Chairman Ben Bernanke that the new
limit could be as much as $1 million. Paulson stressed, however, that he did
not favor raising the loan limits forever, only until the current credit crunch
Such a change, Paulson said, may help "jump start" the market for
the largest home loans and would be part of a package of legislative changes
which the administration has long sought to reform federal regulation of the
two corporations by strengthening the Office of Federal Housing Enterprise Oversight.
Paulson suggested the changes during a speech in Orlando, Florida which is
part of a three-state swing to quiet critics who have said that he did not act
quickly enough to aid borrowers at risk of defaulting as their home values dropped
and their interest rates reset.
The Treasury Secretary, however, did not address other limits on the GSE's
lending ability. Freddie and Fannie are both working under caps on their portfolios
which they say are hampering their ability to assist borrowers and lenders in
the current credit crisis. Under the current rules Freddie and Fannie can facilitate
the sale of mortgage loans to secondary market investors but cannot keep loans
for their own portfolios above a level tied to their capital reserves. At first
glance it would seem that increasing the limits on individual loans would mean
that the GSE's would be able to fund fewer loans before hitting those
The Treasury chief rejected recent suggestions by former Fed Chairman Alan Greenspan
that government money be used to rescue Americans at risk of losing their homes.
"This program is attempting to prevent a market failure and do so without
government money," he said. "We are not touching the contracts in place."