A U.S. senator moved to raise the limits on the size of mortgages that Fannie Mae (FNM) and Freddie Mac (FRE) can buy or guarantee in certain costly housing markets.

Sen. Patty Murray, D-Wash., plans to introduce an amendment to economic stimulus legislation currently being debated in the Senate to restore the higher limits that were in effect for most of 2008, according to a draft of the amendment obtained by Dow Jones Newswires.

The amendment would also lift the limit on the size of mortgage the Federal Housing Administration can insure in high-cost markets.

The high-cost limits were raised to nearly $730,000 by economic stimulus legislation passed last spring. They dropped to $625,500 on Jan. 1. The House-passed stimulus package would restore the limits to nearly $730,000. The Senate version of the bill so far does not include language to raise the limits.

The drop in the high-cost limit has pushed up rates on larger mortgages that no longer qualify for purchase by Fannie or Freddie. Interest rates on "conforming" loans - those that can be sold to Fannie or Freddie - are much lower than on larger loans, known as "jumbos."

The Mortgage Bankers Association and the National Association of Home Builders have been lobbying aggressively to restore the limits to their previous levels, arguing that it will help stabilize the housing market.

-By Jessica Holzer, Dow Jones Newswires; 202-862-9228; jessica.holzer@dowjones.com