WASHINGTON - Two key members of the House Banking Committee are threatening congressional action if Freddie Mac does not reverse its decision to raise its individual-loan limit to $207,000 for 1996.

The arm-twisting came in the form of a letter to Freddie Mac's chairman, Leland Brendsel, from Rep. Richard H. Baker, R-La., chairman of the subcommittee on government-sponsored enterprises, and Congressman Rick Lazio, R-N.Y., chairman of the subcommittee on housing.

The dispute involves the decision by Freddie Mac - the Federal Home Loan Mortgage Corp. - to raise its 1996 loan limit from the current $203,150, in line with a 1.9% increase in the October housing price index maintained by the Federal Housing Finance Board.

Such increases are permitted under the law. However, the plan is considered controversial because Freddie Mac, like Fannie Mae, did not lower its ceilings for 1994 and 1995, even though the index indicated that home prices fell 3% in 1993 and 1.5% in 1994. The law makes no reference to what happens when the index slips.

The index remains 2.5% below its 1992 level even with the latest increase, and Fannie Mae - the Federal National Mortgage Association - has so far elected to hold its 1996 limit at $203,150.

The letter from the two Republicans said that "since this year's increase does not offset the prior year's decreases, your ceilings should remain at their earlier levels."

"If Freddie Mac is unclear regarding the intent (of the law), it may be helpful that the appropriate authorization explore this issue during the next session and propose legislation that will clarify Congressional intent regarding the increase in the conforming loan limits," the letter added.

Freddie Mac said after receiving the letter that it would not roll back its planned increase in the loan limits.

"We are maintaining our position that the higher loan limit will make low-cost mortgage credit available to more American families," a spokeswoman said.

The congressional letter appears to have been strongly influenced by the Western League of Savings Institutions, a trade group that represents the large California thrifts.

Like that group, the congressmen argue that prices have fallen dramatically in the highest-cost areas of the country, thus insuring that Freddie Mac has captured "a significantly larger percentage of the market in the very areas you claim need the increase."

"We urge you to reconsider your action and refrain from introducing a permanent upward bias in the conforming loan ceiling," the letter said.

Mr. Brendsel, the Freddie Mac chairman, is known to dislike such political accommodation, and at least so far the issue has not provoked widespread Congressional criticism. Indeed, this letter is the first official sign of Congressional displeasure, and it is weakened by the conspicuous absence of Iowa Republican Jim Leach, who chairs the Banking Committee.

From the viewpoint of those who support the lower loan limit, the letter comes at the 11th hour. Fannie Mae was said to be on the verge of reversing its decision and raising the loan limit to $207,000.

In a companion letter to Fannie Mae, Mr. Baker and Mr. Lazio appear to be administering a dose of spine stiffener. They commended the chairman and board of Fannie Mae for their "restraint" in holding the limit constant for 1996. A healthy nonsubsidized private-sector market operates above the conforming loan limits, the letter said.

But it is unlikely that the congressional letter will persuade Fannie Mae to hold to its lower limit and accept a permanent competitive disadvantage to rival Freddie Mac.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.