Sidestepping a confrontation with Congress, Freddie Mac Chairman Leland Brendsel said his agency would adjust for declines in home prices in 1993 and 1994 before raising its loan ceiling next year.
But a key lawmaker, Rep. Richard H. Baker, R-La., promised to keep the spotlight on the underlying issue of whether Freddie Mac and Fannie Mae's growth is unfairly encroaching on what he called "free market suppliers" of mortgage credit - banks and thrifts.
Mr. Brendsel's decision could cut in half the likely increase in the size of the largest loans that Freddie Mac, formally the Federal Home Loan Mortgage Corp., and Fannie Mae, the Federal National Mortgage Association, may buy next year.
With the adjustment, the 1997 ceiling could rise by $10,000 from the current $207,000, rather than by $20,000 without it. The exact size of the increase will be clearer after the Federal Housing Finance Board releases its average home price index on Nov. 27.
Rep. Baker, chairman of the subcommittee on capital markets, securities, and government sponsored enterprises, commended Mr. Brendsel for his decision, but added that Congress would have mandated the adjustment by law next year in any case.
"There's no reason to fly in the face of legislation that will be adopted" early next year, Rep. Baker said in an interview Thursday.
He promised that "all eyes will continue to focus" on this issue, which has emerged as an annual flash point for conflict between the agencies and their competitors, who argue that Fannie and Freddie are already too big and too hungry.
The saga began in October 1993, when the average home price index maintained by the Federal Housing Finance Board showed a 3% drop for the preceding year. The agencies refused to lower their ceilings to take account of the drop, and stuck to that decision when prices fell again, by 1.5%, by October 1994.
Thrifts howled, to no avail, and Freddie Mac added insult to injury last year when it decided to raise its ceiling by 2% to reflect an increase in home prices in 1995, without adjusting for the previous decreases.
Fannie Mae said, at first, that it wanted to account for the decreases, but it ultimately went along with Freddie, citing competitive pressures.
In a letter sent late Wednesday to Rep. Rick Lazio, R-N.Y., chairman of the Housing and Community Opportunity subcommittee of the House Banking Committee, Mr. Brendsel wrote that "as a matter of public policy, I continue to believe that as many families as possible should have access to the tremendous benefits of the secondary market."
He added that 80,000 families would have to turn to more expensive home loans because Freddie Mac is taking the smaller increase.
Fannie Mae's chairman, James A. Johnson, had already agreed to take the smaller increase next year. On Thursday, a Fannie Mae spokesman said, "We are pleased that Freddie Mac has come around to our position."
