A U.S. senator is pushing to extend the higher limits for the size of home mortgage that Fannie Mae (FNM) and Freddie Mac (FRE) can buy or guarantee in certain costly housing markets.

An aide to Sen. Patty Murray, D-Wash. said the senator is working to attach the legislation to a stop-gap funding measure that could be considered by the Senate later this week.

Murray's legislation would also lift the limit on the size of mortgages the Federal Housing Administration can insure in expensive markets.

The housing industry is nervous about the looming expiration of the higher loan limits, which are set to revert to lower levels at the end of the year unless Congress acts. Interest rates on "conforming" loans--those that can be sold to Fannie or Freddie--are much lower than on larger loans, known as "jumbos."

Uncertainty about whether they will be able to sell off the loan to Fannie or Freddie is already making some lenders reluctant to guarantee rates on certain mortgages, industry groups wrote in a letter to House and Senate leaders Monday. Mortgage lenders lock in rates for borrowers up to 60 days ahead of closing.

"Consumers cannot lock in current interest rates beyond 60 days for loans over $625,500," the Mortgage Bankers Association, the National Association of Home Builders and the National Association of Realtors wrote. "As a result, loans that do not close before year-end will need to be re-underwritten and possibly then declined because of the higher interest rate and resulting mortgage payment."

Lucien Salvant, the National Association of Realtors' public-affairs director, said, "The effective expiration is coming up in a couple days. Lenders are already wary of the expiration."

The loan limits in costly housing markets were raised temporarily to almost $730,000 by economic-stimulus legislation passed earlier this year. They will drop back to $625,500 on Jan. 1, barring congressional action.

The House has already passed appropriations legislation that would extend the higher loan limits, but the Senate version doesn't include the extension. Spokesman Matt McAlvanah said Murray was working simultaneously to extend the higher loan limits in House-Senate negotiations on that bill and to tack the extension onto the stop-gap funding measure later this week.

-By Jessica Holzer, Dow Jones Newswires; 202-862-9228; jessica.holzer@dowjones.com