The chairman of the Senate Banking Committee is trying to secure a one-year extension of the $729,750 GSE loan limit in a continuing resolution the Senate is expected to pass next week.

Sen. Chris Dodd, D-Conn., warned that without the extension it would drive home prices down — "therefore reducing the amount of equity that people may have accumulated in their homes."

The maximum $729,750 loan limit for Fannie Mae, Freddie Mac and Federal Housing Administration (FHA) loans in high cost areas is due to expire at the end of this calendar year. When it does the maximum loan limit will drop to $625,000.

Congress is expected to adjourn at the end of September with lawmakers returning home to campaign for re-election. The continuing resolution will fund government operations until Congress returns in November. But it also means there are few legislative days left this year, adding to the uncertainty of an extension.

The Obama administration supports a one-year extension, but Republican lawmakers want to ratchet back Fannie and Freddie's market share.

FHA commissioner David Stevens warned that resetting the loan limit could trigger a reduction in the FHA market for loans between $271,050 and $417,000. (FHA loan limits in local markets are tied to median house prices.)

"Our recommendation is to simply extend the limits for another year," Stevens said, to give housing another year to heal.

Sen. Bob Cocker, R-Tenn., indicated there should a simple way to deal with the FHA issue. "It doesn't seem to me it's that difficult," the Tennessee senator said.

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