The General Accounting Office is proposing that Congress change the way Fannie Mae and Freddie Mac calculate their loan limits.

The change could wipe out the competitive edge the Federal National Mortgage Association and the Federal Home Loan Mortgage Corp. gained this year.

Despite a 3% drop in the housing price index, they did not cut the maximum size of the loans they buy, $203,150.

The agencies may raise their limit by the amount of increase in an index of housing prices compiled by the Federal Housing Finance Board each November, but the law does not spell out what happens when prices fall.

In a draft report prepared for comment, the GAO suggested that the law be amended so that the advantage the agencies gained last year over portfolio. lenders is not made permanent.

The GAO recommends that the agencies base their 1995 limit on the movement in the index since 1993.

Using the existing method, the agencies could get higher limits than under the GAO's proposal, and "disproportionately benefit at the expense of savings institutions," the report says.

Thrifts have the market for loans above the $203,150 limit to themselves and fight hard to hold it back.

Mortgage banks also originate larger loans, but most would prefer higher limits so they could sell to the agencies anyway.

But the GAO's proposal may face an uphill fight.

"We really feel strongly (that) we must make up lost ground," and follow the GAO's proposal, said Brian Smith, director of policy at the Savings and Community Bankers of America.

"If we don't get that, that's truly, truly outrageous," he added.

The index appears to be heading to a 5% increase this year.

Some other groups may not have the stomach for the fight, after last year's debacle, when Henry Cisneros, secretary of housing and urban development, urged the agencies to lower their loan limits, only to back off a few days later under pressure, some said, from the White House.

"We lost the battle at HUD, and Congress didn't pick it up," said Lou Nevins, president of the California League of Savings Institutions, and a vocal critic last year.

"We will argue loudly, probably publicly, to appeal to (Fannie and Freddie's) top management to show a little restraint" this year, Mr. Nevins said.

But "are we going to fall on our sword to get them to go down?" he asked.

The league has more important things to do, he said.

Fannie and Freddie declined to comment.

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