U.S. regulator won't change Fannie, Freddie loan limits before April, 2014

WASHINGTON (Reuters) - U.S. lenders will get at least six months' notice before the government reduces the limit on the size of loans that taxpayer-owned Fannie Mae <FNMA.OB> and Freddie Mac <FMCC.OB> can back, the firms' regulator said on Thursday.

The Federal Housing Finance Agency, which has already said it was considering lowering the cap to wean the housing finance system off its dependence on the government, said any change would be phased in to avoid economic disruptions.

"We're not looking to disrupt the market or create some sudden dislocation. Anything we would do would have a long lead time and be gradual and measured," FHFA Acting Director Edward DeMarco told reporters.

The housing finance industry had expected officials to lower the limits on Fannie Mae and Freddie Mac-backed loans on January 1. While it will get more time to prepare for any changes, a decision on whether to lower the limits, and by how much, would still be made in late November, DeMarco said.

Currently, Fannie and Freddie cannot back loans of more than $417,000 in most markets, although the cap ranges as high as $625,500 in some pricier areas -- including Washington, D.C., California and the New York City area -- and up to $721,050 in Hawaii.

Separately, DeMarco said disputes between financial institutions and the government-run mortgage finance firms on loans made before the financial crisis are on track to be settled by the end of the year.

"We've been making progress on getting the claims resolved and settled," DeMarco said. The firms are sorting through delinquent loans for signs of any violations of representations and warranties.

(Reporting by Margaret Chadbourn; Editing by James Dalgleish and Dan Grebler)