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Paulson: Lenders may handle jumbo loans

WASHINGTON - Shifting course, Treasury Secretary Henry Paulson planned to tell Congress that the Bush administration would consider allowing the big mortgage companies Fannie Mae and Freddie Mac to temporarily buy, bundle, and sell as securities loans exceeding $417,000.

This change, which the Bush administration opposed in the summer, is portrayed as a way to inject liquidity into the stretched mortgage market.

Paulson said the change involving jumbo loans could occur only in tandem with tighter oversight of the two government-sponsored mortgage companies, according to a person familiar with the secretary's testimony prepared for a House hearing today.

Paulson planned to tell lawmakers "there's little question" that the change "would give a short-term lift" to the mortgage market.

At the same time, he was expected to urge passage of legislation to tighten federal oversight of the companies.

Word of Paulson's position came on the same day that federal regulators raised the caps on the mortgage investment holdings of Fannie Mae and Freddie Mac in an effort to alleviate the strain in the mortgage market.

The Office of Federal Housing Enterprise Oversight, which oversees Fannie Mae and Freddie Mac, said Fannie Mae can increase its mortgage portfolio by 2 percent a year, or up to 0.5 percent per quarter, starting Oct. 1. The agency said it will set the portfolio cap for both companies at $735 billion. Freddie Mac's currently is at $724 billion.

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