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FANNIE MAE TO REVIEW ITS LOAN LIMIT AMOUNT; CITES POTENTIAL HARM TO HOUSING MARKET

 WASHINGTON, Nov. 30 /PRNewswire/ -- Citing potential harm to the housing market, the Federal National Mortgage Association (Fannie Mae) (NYSE: FNM) today announced that during the next few weeks, it will decide at what level it will set its 1994 mortgage loan limit. A spokesperson for Fannie Mae said that the company's decision was prompted by an unusual decline in the house price index that the company has used in the past to determine its loan limit. Reducing the loan limit could have several harmful effects in the housing market, the spokesperson said, including a negative impact on home buyers in high cost, recession-battered areas; operational burdens on local lenders; and confusing inconsistencies with similar limits for federally insured mortgage loan programs that have been increasing.
 Fannie Mae loan limits establish the highest loan amounts the company will purchase in a given year. For 1993, Fannie Mae limits the single-family conventional mortgages it purchases to loans up to $203,150.
 In the past, Fannie Mae each year at this time has established its new loan limit for the upcoming year. The company's congressional charter states that the loan limit is to be adjusted annually by adding to it an amount equal to the increase in housing prices as reflected in data collected by the Federal Housing Finance Board (FHFB). The statutory formula is based on the FHFB's October-to-October survey of home sales.
 This year, FHFB's data showed an unprecedented 2.96 percent decrease in the prices of homes in its survey, which compares a selection of sales from the last five days of each October.
 Most other assessments of housing prices have suggested that prices have been stable or have risen slightly in 1993, according to David Jeffers, Fannie Mae's vice president for corporate relations. The National Association of Realtors' survey of existing home sales, and the Census Bureau's new home sales data show increases over most of the year, he said. Given that these other indices do not reflect declines, Fannie Mae is concerned about taking an action that could hurt home buyers.
 Fannie Mae's charter calls for the company to serve the interests of low-, moderate- and middle-income home buyers by adjusting its loan limits to reflect home price increases and does not provide for decreases in the limit if FHFB's survey shows a decline in prices.
 "We are concerned about the effect that a substantial decrease may have to the housing market, especially in high cost areas such as California, New York and Massachusetts," Jeffers said. "At a time when potential home buyers in these areas have a particularly strong need for the lower interest rates and affordable housing programs that Fannie Mae provides, a decrease in the loan limits could deny them those benefits."
 Jeffers cited other reasons that company officials want time to review the situation. For example, a rollback in its loan limit may be illogical, he said, while under the same market conditions the limits on federally insured home mortgage loan programs are increased.
 "FHA and VA mortgage loan limits are consistently adjusted only upward," Jeffers said. "Congress spoke directly to this issue last year when it made the existing FHA high cost limits a floor, thereby ensuring the limits could not be lowered."
 Jeffers also noted that a rollback in the mortgage limit could place a heavy burden on lenders. "We learned in 1989, when we reduced the limit by only $150, that a decrease in the limit imposed real operational problems for lenders, especially small and medium size lenders," he said.
 Fannie Mae officials will begin an intensive review of the issue immediately and will announce its intentions no later than Dec. 31, 1993. During the process, Fannie Mae will consult with government officials, as well as housing industry representatives and Fannie Mae customers, Jeffers said.
 If Fannie Mae ultimately determines to adjust the loan limit, it will work with lenders to ensure an appropriate transition period to minimize costs and disruption to lenders and home buyers.
 Fannie Mae is a congressionally chartered, shareholder-owned company and the nation's largest source of home mortgage funds.
 -0- 11/30/93
 /CONTACT: David Jeffers of Fannie Mae, 202-752-5962/
 (FNM)


CO: Federal National Mortgage Association ST: District of Columbia IN: FIN SU:

MH-DC -- DC030 -- 8902 11/30/93 16:39 EST
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Date:Nov 30, 1993
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