mortgage market are parting company on the maximum size of loans they will buy. Fannie Mae, formally the Federal National Mortgage Association, said Wednesday that it would keep the loan ceiling at $203,150 next year even though an index of home prices used to set the limit climbed by 2%. But Freddie Mac - the Federal Home Loan Mortgage Corp. -is planning to increase the ceiling, in line with the index, to $207,000, industry officials said. Freddie Mac had not announced its position as of late Wednesday. The unprecedented split would mean that Freddie Mac will be able to buy roughly $5 billion of loans that will be off limits to Fannie Mae, according to estimates by the Mortgage Bankers Association of America. Some observers said the split may be unable to survive political or competitive pressures. "I can't imagine, long-term, us operating as an industry with two different loan amounts," said Paul Reid, president of American Home Funding Inc., Richmond, Va., and president of the MBA. "I'm hopeful that Fannie Mae will reflect on this thing, and in a short period of time, agree to raise the limit." For one thing, Freddie Mac will gain an immediate edge over Fannie Mae in the fierce battle for market share. Beyond that, Freddie Mac may gain ground, as lenders that do business exclusively with Fannie Mae are tempted to switch to Freddie, Mr. Reid said. Even lenders that do business with both agencies may end up doing somewhat more with Freddie Mac just because it's easier, he said. If Fannie is expected to feel competitive heat, it's probably banking on Freddie getting some political heat. Both agencies held the loan ceiling firm over the past two years, even as home prices fell. "We didn't go down the last two years because the index is not intended to adjust the limit downward," said a Fannie Mae spokesman, David Jeffers. He added, however, that Fannie did not want to push the ceiling higher than what was reflected by the current figures. "We do respect the index," he said. By law, the ceilings move in tandem with average October home prices, as compiled by the Federal Housing Finance Board. This index fell 3% in 1993, and then 1.5% in 1994. But, citing hardship to lenders, Fannie Mae and Freddie Mac elected not to lower their loan limits. And a study last year by the General Accounting Office supported their reading of the law. On both occasions, the agencies were roundly criticized by thrift groups, who accused Fannie Mae and Freddie Mac of grabbing market share at the more profitable, upper end of the market. The thrift groups renewed their criticism of Freddie Mac on Wednesday. Brian P. Smith, director of policy development at America's Community Bankers, called Freddie Mac's move "incomprehensible." "The idea is to have a reasonable demarcation line between the part of the market that gets extra assistance from implicit government subsidy, and the part that doesn't. And it doesn't make any sense at all to have two different lines," Mr. Smith said. It's not clear that the thrift lobby, or any other group, would have the clout to budge Freddie Mac's decision to raise its ceiling, or Fannie's, should it follow suit. In choosing to maintain its current ceiling this year, Fannie may have been looking at the broad political picture. In a Congress hungry for new sources of revenue, the agencies' bulging coffers have caught the attention of powerful Republicans, such as the chairman of the House Budget Committee, John Kasich, R-Ohio, and Jim Leach, R-Iowa, chairman of the House Banking Committee. In addition, Fannie Mae has been under fire in Washington, D.C., for not paying corporate income taxes - an exemption it enjoys along with Virginia- based Freddie Mac. Fannie Mae's latest move will help keep critics at bay, said Lou Nevins, president of the Western League of Savings Institutions. "I think that in the face of a legislative and regulatory environment where nobody would have lifted a finger (had Fannie Mae raised the loan limit), the Western League really applauds Mr. Johnson (Fannie Mae Chairman James Johnson) and the Fannie Mae board for showing restraint," said Mr. Nevins "We really appreciate what they did." At the ACB, Mr. Smith agreed. "They're doing exactly the right thing," he said. "We think it maintains the underlying logic of indexing the loan limit in the first place."

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