Reducing conforming loan limits at Fannie Mae and Freddie Mac will help reduce the GSEs' dominance in the mortgage market by driving jumbo mortgage financing back to the private sector for financing, the U.S. Treasury said in its "Reforming America's Housing Finance Market" report on Friday. Under the Treasury's plan, a 2008 increase in loan limits that allowed GSEs to temporarily back loans valued as high as $729,750, would expire on Oct. 1, reverting to the previous ceiling of $625,500. In a report from the George Washington University Center for Real Estate and Urban Analysis this week, researchers concluded that the Federal Housing Administration substantially raised its risk when it agreed to insure GSE loans valued as high as $729,000 during the financial crisis. The report advocated a return to 2006 levels when the FHA loan ceiling topped out at $362,790. The Treasury report also said lowering conforming loan limits on jumbo mortgages and requiring a 10% down-payment for GSE loans will eventually ease the mortgage market back to the private sector while containing systematic risks. In the Treasury report, the current GSE-model is criticized for allowing Fannie Mae and Freddie Mac "to behave like government-backed hedge funds, managing large investment portfolios for the profit of their shareholders with the risk ultimately falling largely on taxpayers." To curb some of the risk, the PSPAs, which provide  financial support to the GSEs, would require the GSEs to wind down their investment portfolios at a rate of no less than 10% annually. To brace for risks and shocks in the economy, the Treasury also advocates for a mortgage securitization model where securitizers and originators are required to retain 5% of a security's credit risk when a loan is sold to investors. In addition, the Treasury would require banks originating loans to have more skin in the game by holding higher levels of capital to withstand economic downturns and to hedge against the risk of default on higher-risk loans. Write to Kerri Panchuk.