Lawmakers from districts with pricey home markets will make the case for substantially increasing the size of mortgages Fannie Mae and Freddie Mac can buy in a Thursday hearing before the House Financial Services Committee.

The hearing comes as legislation is pending in Congress to raise the loan limits for such high-cost areas for good after they were temporarily raised through the economic stimulus bill approved earlier this year.

Miller, Sen. Charles Schumer (D-N.Y.) and other lawmakers from such expensive areas have long called for permanently higher loan limits. They argue that allowing Fannie Mae and Freddie Mac to purchase bigger loans from lenders would lower mortgage costs in such places, greasing the housing market.

“[The higher caps] make the difference in being able to sell your home and move to a lower-cost area,” Miller said.

The National Association of Realtors has for years pushed hard for higher limits in the belief that they would help them to sell more homes. Banks, however, have traditionally opposed lifting the caps, arguing that to do so would allow Fannie and Freddie, for-profit companies that enjoy a substantial subsidy from the government, to compete unfairly with them.

Since the credit markets seized up last summer, the interest rates on so-called jumbo loans, which are larger than $417,000, have been substantially higher as jittery investors have been reluctant to buy them from lenders.

The economic stimulus legislation passed in February allowed Fannie Mae and Freddie Mac to purchase loans as large as $729,500 in 224 high-cost markets — but only through the end of the year. At that time, Fannie and Freddie will be prohibited again from purchasing loans larger than $417,000.

Miller says the increased caps have already eased the cost of jumbo mortgages in his district.
But some argue that the banks and Fannie and Freddie aren’t doing enough to take advantage of the higher limits.

Early in May, House Financial Services panel Chairman Barney Frank (D-Mass.) said he was “disappointed” by the slow progress in making jumbo loans more available.

“We fought hard to raise the loan limits for Fannie and Freddie, and there have been a lot of problems in the implementation,” he told an audience at a Mortgage Bankers Association (MBA) conference on May 5.

Frank called Thursday’s hearing to delve into the issue.

Meanwhile, House and Senate negotiators are poised to haggle over the size of a permanent increase in the cap included in legislation to give Fannie and Freddie a new regulator.

House-passed legislation would extend the nearly $730,000 cap, while a bill the Senate Banking Committee approved Tuesday would raise the ceiling to $550,000.

Frank warned this week that the Senate’s lower limit would not fly with House Speaker Nancy Pelosi (D-Calif.) and the large California delegation. The Realtors are also fighting to make the temporary cap permanent.

Evidence showing that the higher caps have eased jumbo loan costs would help make the case for extending them permanently.

Fannie and Freddie say they are aggressively taking advantage of their new authority to help bring down costs.

“It’s having an impact. The rates are coming down in high-cost areas,” said Brad German, a spokesman for Freddie Mac.

The mortgage giants have taken steps in recent weeks to appease lawmakers impatient with the high jumbo rates, which appear to have eased only slightly in some costly markets, according to press reports.

Freddie Mac announced it would buy between $10 billion and $15 billion of jumbo mortgages from major lenders such as Wells Fargo , JP Morgan Chase and Citigroup .

Fannie Mae announced on May 6 that it would pay the same amount for jumbo loans as it does for conventional loans. Since jumbo loans are typically priced more cheaply due to the higher risk that borrowers will prepay, the move is seen as a response to political pressure.
Fannie Mae has had a “positive response” from lenders on the pricing announcement, spokeswoman Amy Bonitatibus said.

Also, on Friday, it announced that it would expand the types of jumbo loans it would purchase.

In a recent speech, Federal Reserve Chairman Ben Bernanke said that rate premiums on jumbo loans have “retraced a portion of their earlier large increases.”

However, the total volume of jumbo loans sold to investors has been “small” since April 1, said Art Frank, the director of Mortgage-Backed Securities Research at Deutsche Bank.

During that time, less than $50 million worth have been issued by Fannie, Freddie and private firms that package such loans into securities, he said.