The Office of Federal Housing Enterprise Oversight today quashed the notion that it will consider increasing GSE portfolio limits in response to current mortgage market conditions. The OFHEO released a statement that in part read:

… in response to Fannie Mae’s request to increase the portfolio caps, we issued a letter today to Fannie Mae. We also issued a response to Senator Schumer’s recent letter on this topic … The letters indicate that we will keep under active consideration requests for an increase in the portfolio caps, but we are not authorizing any significant changes at this time.

Here’s a copy of the letter sent to Sen. Schumer. In the letter, OFHEO Director James Lockhart intimated that it would undermine the core mission of each GSE if an increase in portfolio limits were allowed, since the motivation behind such a push is to help bolster the faltering subprime and Alt-A credit markets. Lockhart makes it amply clear in his letter that he feels the GSEs need to focus upon serving their traditional markets — prime, conventional and conforming — and not jumping in to save subprime and Alt-A, which he characterized as victims of “shoddy underwriting practices.” Update: Bill Maloni certainly has a problem with this approach, and some very lucid reasons why in what amounts to an impassioned plea to open up the GSE portfolio caps. (Hat tip, Housing Doom).