Fannie Mae's and Freddie Mac's loan ceilings will jump nearly 6% next year, to $227,150, the biggest increase in a decade.

The increase, reflecting strong growth in home prices this year, frees credit for homebuyers by opening the secondary market to more loans. But the announcement last week renewed a long-standing debate over the agencies' role in the home loan field.

"It just puts the government directly involved in more and more of the home-lending market. It's tough competition for us," said Guy C. Pinkerton, president and chief executive officer of Washington Federal Savings, Seattle.

"Any increase of Freddie Mac or Fannie Mae participation in the permanent home-lending market takes away from private business," said Mr. Pinkerton, whose company retains its loans in its own portfolio.

By law, the agencies' loan limits rise in tandem with the Federal Housing Finance Board's housing price index each October. Last Wednesday the finance board said home prices had risen 5.9% by October from a year earlier.

For mortgage lenders who sell loans to the agencies, the change means they can offer slightly lower rates to a larger pool of homebuyers, beating thrifts and other nonagency investors at that business.

"It's going to afford a lot of people a little better buying power," said D.C. Aiken, vice president of HomeBank Mortgage Corp., Atlanta, who added: "It's definitely going to help us."

"For every $1,000 the loan limit goes up, 10,000 borrowers will benefit from secondary-market financing," a Freddie Mac official said.

While some thrift executives groused about the change, the controversy was nothing compared with the furor that arose in past years when the agencies didn't reduce the ceiling in response to declines in home prices.

"It's a fairly predictable increase," said Brian P. Smith, director of policy and economic research at America's Community Bankers. But he added, "It's important to maintain a segment of the high-end mortgage market where fully private-sector lenders will deal with borrowers standing, unassisted, on their own creditworthiness."

Mr. Aiken said the higher ceiling's impact would be more negligible than usual because pricing is so tight throughout the mortgage industry.

"Most lenders can do 95% jumbo loans, and in this market today there is not a huge spread between jumbo and conforming rates," he said.

Spokesmen for the agencies said the change merely keeps pace with the housing market. "Each year that the loan limit has gone up in reflection of the house prices for people of modest means, there has been no evidence of any change in the dynamic between the conforming market and the nonconforming market," said David Jeffers of Fannie Mae.

But others suggested the statistics reflected not only a rise in the prices of average homes but also an unusually hot market for very expensive homes.

"The high end of the housing market is the most vibrant," said Mark Zandi, chief economist of Regional Financial Associates, West Chester, Pa.

Indeed, the finance board said mortgages on homes valued at more than $250,000 made up 15.8% of its sample in October, up from 13.3% for all of 1996.

The National Association of Realtors has seen a similar trend in its numbers, said Orawin Velz, managing director of research at the trade group.

Homes priced at $300,000 to $399,000 made up 4.4% of sales in October compared with 3.5% a year ago, Ms. Velz said. Homes valued at $500,000 made up 2.53% of sales in October compared with 1.84% last year.

Higher loan ceilings couldn't have come at a better time for borrowers. Mortgage rates are hovering just above 7%, making fixed-rate mortgages, which Fannie and Freddie specialize in, extremely attractive.

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