Leland Brendsel, chairman of the Federal Home Loan Mortgage Corp., has proposed that Congress do away with limits on the size of the loans that his agency and rival Fannie Mae can buy.
Such a step would allow the government-sponsored companies to significantly increase their already large share of the mortgage market.
"I think the time has come to eliminate the conforming loan limits altogether," Mr. Brendsel told thrift executives at a meeting of America's Community Bankers here.
"The growth and maturity of our business and the capital markets in the past few decades insures that we can lower mortgage rates for additional borrowers without disturbing our commitment to low- and moderate-income families," he said.
Mr. Brendsel's remarks came as a surprise in light of the recent controversy that Freddie Mac caused by increasing its loan limit to $207,000 for this year, a move that Fannie Mae - the Federal National Mortgage Association - first resisted and then went along with.
Abolishing that ceiling would give the government-sponsored mortgage agencies a crack at the large and lucrative market for home loans to more- affluent borrowers.
As with the conforming end of the market, the mortgage agencies are likely to push interest rates down, making it difficult for other investors, such as thrifts, to hold the loans profitably.
Brian Smith, director of policy at America's Community Bankers, a thrift trade association, said Fannie Mae and Freddie Mac have already "swallowed" the conforming loan market.
"Where is the market imperfection that these programs would be solving?" Mr. Smith asked, referring to the proposed expansion. Thrifts and other lenders already serve the jumbo market, he said.
A spokesperson for a large thrift, who asked not to be identified, said, "If they want to take off the cap, that's O.K. with us. But they ought to be required to put up the same amount of capital as we do."
Speaking to reporters, Mr. Brendsel argued that all homeowners deserve to benefit from the reduced interest rates facilitated by Fannie Mae and Freddie Mac.
"Why should a particular group of borrowers be barred from the efficiencies and the progress that has been achieved over the last 25 years?" Mr. Brendsel said.
He said Freddie Mac had demonstrated that it has the capital as well as the operational capacity to serve the entire mortgage market without sacrificing the lowest-income borrowers.
Protecting the thrift industry was not a good reason to keep the mortgage agencies out of the jumbo market, he said.
Mr. Brendsel, however, acknowledged that Congress was unlikely to act on such a proposal anytime soon.
Many Republicans, particularly in the House of Representatives, are wary of the market power wielded by Fannie Mae and Freddie Mac, and would balk at giving them more.
One group of lenders, however, is likely to back Freddie Mac to the hilt. At a weekend meeting of the National Association of Home Builders, where Mr. Brendsel made similar remarks, he was supported by Angelo Mozilo, vice chairman of Countrywide Credit Industries. Mr. Mozilo, appearing on a panel with Mr. Brendsel, agreed that scrapping the loan limit was a good idea.
