Fannie Mae and Freddie Mac could lose no matter how they react to HUD Secretary Henry Cisneros' request that the GSEs lower their conventional loan limits.
Lowering limits wouldn't be popular among mortgage bankers - their primary customers - because it would restrict the number of Fannie and Freddie loans that lenders could sell into the secondary market. However. leaving the limits alone might put them at odds with Cisneros, a man who holds considerable influence over them.
Some mortgage industry analysts believe the GSEs would have less to lose by lowering the limits. HUD sets the twin-30 low-to moderate-income and central city lending goals instituted by Congress last year. It will set new goals in 1995, and HUD is likely to remember how responsive the agencies were to its requests.
The Office of Federal Housing Enterprise Oversight, Fannie and Freddie's regulating agency, wouldn't have jurisdiction in this case, said an OFHEO spokesman, unless the issue became a safety and soundness issue. Neither Fannie nor Freddie responded to requests for comments.
Fannie and Freddie gauge their loan purchase limits on a house price index, which has declined nearly 3% over the past year. The GSEs' response caught Cisneros'ire, who said in a Dec. 2 release "an index is an index" and that, because the GSEs have raised their limits when the index increased, they should reduce their limits now that it has fallen. The current index requires a limit of $197,000, down from $203,150.
"Fannie Mae has not made a decision about its loan limit," Cisneros said Dec. 2. "We encourage them to adjust it based on the index. As for Freddie Mac, which just announced that it will not change its loan limit, we would like them to reconsider.