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Democrats compromise on Fannie and Freddie limits

WASHINGTON - Congressional Democrats have reached a compromise on allowing two government-sponsored mortgage companies to increase their debt holdings in an effort to help financially struggling homeowners.

House and Senate lawmakers yesterday said they will support legislation to permit Fannie Mae and Freddie Mac to increase holdings of mortgages and mortgage-backed securities by $74 billion each, or 10 percent above current limits - for six months.

About 85 percent, or $125 billion, would be to help borrowers with weak credit refinance loans that are due to reset at sharply higher interest rates.

The move should create some badly needed financial flexibility in a housing market that has been buffeted by soaring foreclosure and default rates. If Fannie and Freddie are permitted to increase their purchases of mortgages from banks, those banks will have more credit to make available to financially strapped homeowners.

Senator Charles Schumer, Democrat of New York, said he plans to attach the proposal to the "first available" bill headed for a Senate vote. A companion bill by Representative Barney Frank, Democrat of Massachusetts, could be introduced as soon as today.

Frank said the short-term increase would be "responsive to the immediate needs to help people avoid the foreclosures that will result if prepayment penalties keep them locked in to adjustable-rate mortgages that will rise steeply" in the coming months.

Earlier this month, Frank said a six-month limit would expire quickly enough that it would not be an obstacle to broader reform.

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