Smaller limits to mortgages that Fannie Mae and Freddie Mac can guarantee could make home loans more expensive and more difficult to obtain, which could smother the housing market recovery.

The Federal Housing Finance Agency (FHFA) plans to lower the size of mortgages that Fannie and Freddie can back next year, in an effort to reduce the government's role in the mortgage market.

The limit, called the conforming loan limit, is now $417,000, but can go up to $625,500 in high-cost areas, such as the San Francisco, Boston and New York City metro areas. The FHFA hasn't yet said what the new limits will be.

Editor’s Note: 75% of Seniors Make This $152,000 Social Security Mistake (See Easy Fix)

Mortgages over that limit, known as jumbo loans, historically have been at least 0.25 to 0.5 percentage points higher. They also often entail tighter lending standards, such as higher credit scores and larger down payments.

The FHFA hopes private lenders will fill the void left by Fannie and Freddie. But it's not certain if jumbo loan lenders, which have been focusing on affluent homebuyers with good credit and large down payments, will finance loans to moderate-income homebuyers or what rates or terms they'll offer.

The private mortgage industry, which virtually disappeared in the wake of the financial crisis, has recovered somewhat, yet still remains a shadow of its former self. Only 2.1 percent of mortgages originated in April were sold to private investors, while approximately 90 percent were purchased by government agencies, according to data from Lender Processing Services, MarketWatch reports.

"Would-be home buyers who are planning to get a mortgage that’s close to the Fannie and Freddie caps might want to consider getting the loan before the year ends," MarketWatch advises.

Lowering the conforming loan limit while the housing recovery is still nascent would be a mistake, National Association of Realtors President Gary Thomas tells HousingWire.

"It would be counterproductive to make changes to the loan limits before capital is fully engaged," he says.

Mortgage Bankers Association president and CEO David Stevens tells HousingWire he thinks the limit will be cut to $400,000, $600,000 in high-cost areas.

"While the change will be small, it will be assumed that borrowers in the middle class won't have an option for a home loan unless FHA [Federal Housing Administration] takes over the loans that are no longer eligible," Stevens explains. "It's just going to frankly totally eliminate the access for any borrowers who are now cut out of those loan limits."

Editor’s Note: 75% of Seniors Make This $152,000 Social Security Mistake (See Easy Fix)