Battle looms over mortgage guarantee threshold Investors, law firms and banks are facing off against homebuilders and real estate agents in a battle over the US government's role in guaranteeing home loans. The American Securitization Forum, which represents the financial industry dedicated to packing and selling loans, is writing to the Federal Housing Finance Agency Friday to urge it to drop the threshold that the government guarantees mortgages from $417,000 to $400,000. Writing that "this level of government involvement is neither sustainable nor advisable," Tom Deutsch, head of the ASF, said that "reducing the conforming loan limits would push more mortgages out of the GSE [government-sponsored enterprise] market and into a functional private-label securitization market." The Structured Finance Industry Group, another securitisation group, said in theory it supported lowering the limit but "on a staged and measured basis." The FHFA, run by acting director Edward DeMarco, proposed in August reducing the size limit for loans that can be purchased by Fannie Mae and Freddie Mac, the GSEs that were seized by the government to stop their failure during the financial crisis. Mortgages above this limit - which is higher in more expensive coastal areas such as New York and San Francisco - are known as "jumbo" loans and typically have higher interest rates. Some Obama administration officials have long seen reducing the conforming loan limit, coupled with increasing the "guarantee fees" paid by banks for government insurance on the loans, as the best way of encouraging private capital back into the market. But many Democrats, community banks, credit unions, homebuilders and mortgage bankers oppose reducing the loan limit, and some actually think it should be increased to help spur the housing recovery. On Tuesday a group of 15 trade associations, including the National Association of Home Builders and National Association of Realtors wrote to the FHFA to argue that it was illegal for it to lower the limit without congressional approval and the proposed change would "leave the American dream out of reach for many families." A longer-term restructuring of the GSEs is moving at glacial pace through Congress. Jeb Hensarling, the Republican chairman of the House financial services committee, has proposed a bill that would essentially privatise the market, while a competing bipartisan bill in the Senate envisions continued limited government involvement. As lawmakers try to find a compromise, the FHFA has moved forward with finding ways to reduce the roles of Fannie and Freddie in the market. Earlier this year, the agency proposed a common securitisation platform for the firms and on Monday, it filed legal paperwork to establish the new joint venture, called the Common Securitization Solutions. The company will take on some functions currently handled by Fannie and Freddie, and help securitise mortgage loans. In the future, the new firm could be privatised as part of legislation or a government order.