A peaceful solution to the long-running controversy over the ceiling on conventional loans appears to have been found. Fannie Mae and Freddie Mac have both agreed, after prodding from Congress, to use restraint in raising the limit from its present $207,000.
And the particular agent of peace seems to be none other than Leland Brendsel, the strong-willed chairman of Freddie Mac, who has been outspoken about the issue in the past and has even supported the eventual elimination of the ceiling.
Is this a kinder, gentler Leland Brendsel? Perhaps.
In a letter to Rep. Richard H. Baker, D-La., chairman of the House Banking Committee, Mr. Brendsel wrote: "Our decision to net out past decreases will avoid a controversy that would divert resources from initiatives important to serving our mission and will prevent potential disruptions in the marketplace."
But Mr. Brendsel hasn't changed his philosophy. He still believes the loan limit deprives a big segment of the population of lowest-cost access to the credit markets. Apparently, he now believes it is more politically expedient to avoid controversy.
The two government-sponsored enterprises have said they will take into account any declines in the index of home prices to which the loan ceiling is tied before raising the ceiling by the full amount permitted by present law.
Fannie, formally the Federal National Mortgage Association, and Freddie, the Federal Home Loan Mortgage Corp., are permitted to raise their ceilings to reflect the October-to-October increases in home prices as measured by the Federal Housing Finance Board. The present law says nothing about what happens when the board's index falls - a contingency that was probably inconceivable when the law was drafted.
With the index declining in 1993 and 1994, the decision by Freddie Mac to raise its 1996 limit on the basis of the October 1995 increase in the index stirred an especially emotional controversy. Fannie Mae initially decided to skip an increase but finally went along with Freddie for competitive reasons.
One of the groups that is pleased by the latest decisions by Fannie Mae and Freddie Mac is the Western League of Savings Institutions, which represents some of the nation's biggest thrifts. Those institutions have been complaining that the agencies already have an unfair advantage in funding costs that enables them to show a higher return on mortgage investment than the thrifts can manage.
By increasing their loan limits, the agencies also increase their share of the lending market that is available to them, something the thrifts obviously do not like. So Louis H. Nevins, the league's executive vice president, went out of his way to praise James A. Johnson, Fannie's chairman, for leading the way to a more modest increase, as well as Mr. Brendsel for joining in.
Mr. Brendsel appears to have chosen his spot well. After all is said and done, the increase by Fannie and Freddie for next year is likely to be at least $10,000, making it one of the largest since the system was begun - even though the housing finance board's index, due in another week, is likely to permit $20,000.