A U.S. House lawmaker introduced legislation to restore last year's higher limits on the size of mortgage loans Fannie Mae (FNM) and Freddie Mac (FRE) can buy in certain costly markets.

Economic stimulus legislation passed into law last year temporarily lifted the loan limits to nearly $730,000 from $417,000 through the end of 2008. The limits dropped to $625,500 from $729,750 on January 1.

Rep. Gary Miller, Republican of California, introduced legislation Thursday to reinstate the higher limits, arguing the move was crucial for restoring the affordability of mortgages in some regions of the country and stabilizing the housing market.

"As the crisis in housing markets continues, the availability of affordable mortgage loans remains essential to alleviating the credit crunch and stabilizing the U.S. mortgage market," Miller said in a statement.

The Jan. 1 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."

Lawmakers representing costly home markets along the coasts have vowed to attach language restoring last year's higher limits to economic stimulus legislation.

The National Association of Realtors, the Mortgage Bankers Association and the National Association of Home Builders have been lobbying for months to make last year's higher limits permanent.

Under a new federal housing law, the higher-cost area cap is set at 150% of the national loan limit, which is determined annually by the Federal Housing Finance Agency.

Last year, the agency said it would keep the national cap at $417,000 for 2009, triggering a drop in the limit for more expensive housing markets to $625,500 from nearly $730,000.

The prevailing loan limits apply to all loans purchased or guaranteed by Fannie or Freddie in 2009, except for loans originated while the higher 2008 loan limits were in effect. For those loans, the roughly $730,000 high-cost limit will apply. -Jessica Holzer, Dow Jones Newswires; 202-862-9228; jessica.holzer@dowjones.com

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