WASHINGTON -- The Federal Housing Finance Board is expected to vote by late next week on a proposal that California thrift executives say would make it harder for them to compete with Freddie Mac and Fannie Mae.

S&Ls that make jumbo mortgage loans could be adversely affected by the plan, which would raise the limit on loans purchased by the two federally chartered mortgage agencies.

The cap, set each autumn for the next year according to a formula based on October home prices, is $202,300 this year.

Home Prices

Thrift leaders say the cap should come down next year because of falling home prices. They claim the finance board, which determines the home price index, is trying to fudge the numbers behind the scenes to appease the Federal National Mortgage Association and the Federal Home Loan Mortgage Corp.

The problem for S&Ls is that when the cap is raised, as is has been in nine of the past 10 years, their market share declines while Fannie and Freddie increase their dominance.

Earlier this year, the housing finance board made adjustments to the formula for the mortgage-purchase cap because S&L executives complained that it wasn't working.

Divergent Trends

"Year after year, the lending limit increased while the price of the median family home was either flat or down," said Herbert Sandler, chairman and chief executive of World Savings and Loan Association, the nation's third-largest thrift.

The finance board gathered home-sale data from more lenders than previously, made adjustments for parts of the country like California, where home prices are inflated, and changed the reporting period from the first five working days of the month to the last five working days, when more loans are closed.

Then Freddie and Fannie questioned the formula's fairness, and the finance board's staff suggested it be tweaked again.

Verifying the Numbers

"We want to be sure the numbers we are providing are the most statistically valid numbers," said Beth Climo, the finance board's general counsel. "We have zero interest in whether [the index] goes up or down."

Mr. Sandler fears the adjustments would cause the 1993 index to rise. In a Nov. 13 letter, he urged the board to put the proposal out for public comment. He also charged that the board has been pressured by Fannie Mae and Freddie Mac to make the changes.

"The credibility of the board could be seriously impaired if it leaves itself open to a charge that it has manipulated its home price index in response to GSE pressure," Mr. Sandler wrote.

The mortgage agencies acknowledged that they have had discussions with the finance board, but deny trying to manipulate the outcome.

"The Federal Housing Finance Board is not beholden to us in any way," said Jesse Abraham, principal economist for Freddie Mac. "We've been talking on a methodological level, not a policy level."

Mr. Abraham said there is a chance the index will decline. He said that would have little effect on Freddie Mac.

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