WASHINGTON - With Fannie Mae and Freddie Mac still holding firm to different loan ceilings for 1996, speculation is mounting over which of the two will back down, and how.

Virtually everybody agrees that the two housing finance agencies cannot continue with different ceilings - for a wide variety of political, operational, and competitive reasons.

And seasoned observers are betting that Fannie Mae will reverse itself, raising its ceiling to $207,000 to match Freddie Mac's. Not to do so would put Fannie Mae at a permanent disadvantage to rival Freddie Mac, since the loan limits at both agencies can rise each year only as much as a government index of home prices.

Fannie Mae, formally the Federal National Mortgage Association, appeared to be opening the door to a reversal last week. Responding to Freddie Mac's increase, spokesman David Jeffers said Fannie Mae would "have to listen to our customers and learn from them" over the next few weeks.

The Mortgage Bankers Association, which represents the largest segment of Fannie's customers, is lobbying the agency to raise its limit, citing operational difficulties for members.

The other outcome - that Freddie Mac, formally the Federal Home Loan Mortgage Corp., would back down - is seen as highly unlikely by all sides. Freddie's chairman, Leland Brendsel, prides himself on making his business decisions independently from congressional and other political pressures. Despite noisy opposition from the thrift lobby, he is expected to stick to the higher ceiling.

The controversy over the size of the largest loans the agencies can buy arose last week when the Federal Housing Finance Board announced that average home prices in October, to which the agencies' loan limits are linked, rose a modest 1.9%. Fannie Mae stunned mortgage bankers by announcing that it would not take the increase, but maintain the $203,150 ceiling.

Fannie Mae cited earlier decisions to maintain its ceiling for 1994 and 1995, despite a 4% drop in the index during those years.

Lenders say separate limits would complicate their application processing. The higher limit would also make some 12,500 loans a year available to Freddie Mac that would not be available to Fannie.

And critics say the higher limit would push the agencies further into upper-income lending.

Fannie's forbearance is widely seen as a bow to prominent critics, such as the chairman of the House Banking Committee, Rep. Jim Leach, R-Iowa, who is philosophically inclined to limiting government's role in the housing market.

Mr. Leach is still smarting from an unsuccessful attempt to impose user fees on Fannie Mae and Freddie Mac that would have helped pay for the thrift fund bailout. He was trounced by Fannie Mae.

Freddie Mac weighed the same political pressures, but chose to go ahead with a ceiling increase. The agency said other indexes showed that home prices have been rising steadily, even as the Federal Housing Finance Board's index dropped.

The different paths taken by the two agencies are in keeping with the personalities of their chairmen.

Fannie's chairman, James A. Johnson, is a veteran of political campaigns and Capitol Hill. He is keenly aware that Fannie Mae's lucrative tie to the government must be carefully tended, and constantly strives to position Fannie Mae as a force that helps low- and middle-income borrowers.

Mr. Brendsel at Freddie Mac makes no secret of his disdain for politics, despite his agency's government ties. Freddie Mac tends to back up its decisions with references to its extensive data and research, rather than through references to its political mission.

So far, Freddie Mac's decision has not led to a Congressional outcry. A key staffer on the House Banking committee did warn that Freddie's move raises the possibility that in the future, Congress would set different requirements on the two agencies, such as imposing user fees on one and not the other.

But such a vague threat is unlikely to sway Mr. Brendsel.

Should Fannie Mae raise its loan limit, it will follow a pattern that has emerged over other politically sensitive issues.

The pattern: Freddie Mac goes first and takes the heat. Fannie Mae makes the right political gestures and then it follows.

For example, two years ago, when the Finance Board's index first fell, Freddie Mac announced promptly that it would hold its loan ceiling firm, despite the drop. Thrift groups, such as the Western League of Savings Institutions, were incensed, and accused Freddie Mac of grabbing share at the more profitable upper end.

Fannie Mae defused the issue and gained political cover through wide- ranging consultations with its lenders, as well as with real estate agents and home builders. Predictably, all of them supported Freddie Mac's earlier decision, and Fannie Mae followed suit.

Lou Nevins, chairman of the Western League of Savings Institutions, has been a vocal critic in the past, and said other groups must rally to the cause this time.

"Fannie has given people the opportunity to safely and without fear of repercussion make their views known," Mr. Nevins said.

Not many, however, want the opportunity to get in the middle of a fight between the two powerful agencies.

For example, the Mortgage Insurance Companies of America could have been expected to oppose Freddie's increase because it will lead to higher ceilings for the Federal Housing Administration loan program. But the group is steering clear. A spokeswoman said the mortgage trade group was taking no stand on the issue.

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.