Proposed mortgage plan could aid markets

Treasury Secretary Henry Paulson, speaking to reporters after the deal was announced, said he did not support raising Fannie and Freddie's loan limits without strengthening government power over the companies.

"I got run down by a bipartisan steamroller," on the issue, Paulson said, adding that he believes lawmakers would still pursue a broad overhaul of government regulation for the two companies.

James B. Lockhart, director of the Office of Federal Housing Enterprise Oversight — which oversees the two companies — said in a statement that raising the limits for Fannie and Freddie without providing stronger government oversight "would be a mistake."

Michael Cosgrove, a spokesman for McLean, Va.-based Freddie Mac, said the change "would be in the best interest of the economy and consumers," but noted that extra capital the company is required to hold on its books "creates a significant challenge for Freddie Mac as we continue to operate under severe capital constraints."

Amy Bonitatibus, a spokeswoman for Washington-based Fannie Mae, said, "If policymakers choose to raise the loan limit, we are supportive and committed to doing what we can to help."

Groups representing Realtors, bankers and home builders, which have been hit hard by the mortgage market downturn, have been lobbying for such changes for months.

The National Association of Realtors has been pushing for a permanent expansion of the Fannie and Freddie limits. The trade group calculates that borrowers could save $3,000 to $5,000 per year in reduced interest costs as a result and projects up to 210,000 foreclosures could be prevented since refinancing into lower-rate loans would be easier.

Dale Stinton, the group's chief executive, said in a statement Thursday that increasing the loan limits "is a truly meaningful economic stimulus and should be enacted quickly."

Shares of Fannie Mae fell 59 cents to close at $34.19, while shares of Freddie Mac fell 52 cents to close at $32.