Freddie Mac is actually playing catch-up by increasing the size of loans it will buy, the agency's chief economist says.
The decision to raise its loan ceiling by 1.9%, to $207,000, follows two straight years of home price increases that were not accompanied by increases in the loan limit, said Robert Van Order, the chief economist.
Freddie Mac points out that its own barometer, the Freddie Mac/Fannie Mae conventional mortgage house price index - linked to a huge data base the company shares with Fannie Mae - shows that a significant jump occurred in the last two years.
Mr. Van Order discussed the index in brief comments at an annual holiday party Freddie Mac - formally the Federal Home Loan Mortgage Corp. - holds for members of the press. He also said the Freddie/Fannie index is a much less volatile and a more timely gauge than other often-used barometers.
Mr. Van Order included in his examples the Federal Housing Finance Board index, to which Freddie and Fannie's limits on individual home loans are linked. That barometer rose a modest 1.9% between October 1994 and October 1995, and Freddie announced it would raise its ceiling by the same percentage after holding steady for two years.
The decision generated a firestorm of debate as the industry considered whether Freddie Mac's rival, Fannie Mae, would soon follow suit. Representatives of Fannie - the Federal National Mortgage Association - are noncommittal about switching from their current loan ceiling of $203,150, but analysts say it's only a matter of time.
The holiday luncheon was also a chance for Freddie Mac Chairman Leland Brendsel to talk up credit scoring, which Freddie will be using more widely when it considers the loans it purchases from lenders.
Many mortgage bankers are reluctant to see credit scoring used, feeling it could cause discrimination or lead to arbitrary repurchase requirements.
But Mr. Brendsel said the scrutiny from credit scoring will serve lenders and borrowers. The practice "will reduce the travesty of loan default and foreclosure," he said.
Mr. Van Order suggested that there would be fewer foreclosures in coming months. Given the higher employment and lower inflation the nation is experiencing, "we haven't been in as good a position since the late 1960s," he said.
Mr. Van Order did, however, predict a recession between now and the turn of the century, though "not too severe" a pullback.
Nearer term, interest rates will likely stay about the same over the coming year, and increases in housing prices will exceed the rate of inflation, Mr. Van Order said.
