WASHINGTON — – Fannie Mae and Freddie Mac, the biggest sources of home financing, can buy $20 billion more in sub-prime mortgages under rules unveiled Wednesday to help revive a market crippled by tighter lending standards.

The Office of Federal Housing Enterprise Oversight, the mortgage finance companies’ federal regulator, agreed to relax restrictions on their investment holdings, although it did not eliminate existing caps on those loan portfolios.

The moves are meant to help Fannie Mae and Freddie Mac “provide greater assistance to sub-prime borrowers and others who may have trouble refinancing their existing mortgages,” James Lockhart, director of the oversight office, said in a statement.

However, Lockhart also said that he would block “any major increases in the [investment] portfolio levels.”

The regulator agreed to let both companies buy more sub-prime loans and eased Fannie Mae’s investment limit to the level imposed on Freddie Mac. The oversight office also agreed to eliminate some stringent bookkeeping measures that further constrained the investments, which are valued at a combined $1.4 trillion.

Sub-prime loans are extended at high interest rates to borrowers with spotty credit histories. The companies’ allies in Washington have for months called on the oversight office to give Fannie and Freddie more investment leeway so they can buy sub-prime loans now shunned by other investors as too risky.

Fannie and Freddie have already pledged to increase their sub-prime investments and the oversight office’s move will help them to buy or securitize some $20 billion of the troubled mortgages in the next six months, Lockhart said.

The Bush administration has opposed giving the companies fresh tools to expand their presence in the market, so the oversight office decision was seen as a softening in that stance.

Both companies welcomed the news, but said they needed more freedom to buy home loans to help stabilize the roiling market. Fannie has called for the investment cap to be raised by at least 10%.

The new rules mean more investment freedom, but they do not amount to an investment bonanza, said Jim Vogel, who tracks the companies for FTN Financial in Memphis, Tenn.

“At this point, we’re reluctant to say this frees [them] to buy tens of billions of new conforming assets,” Vogel wrote in a note to clients. Conforming loans are those that do not exceed $417,000, including both prime and sub-prime debt.

The companies’ allies have called for that loan level to be raised, a move Federal Reserve Chairman Ben S. Bernanke said should only be done on a temporary basis.

“If the Congress is inclined to move in this direction, it should consider whether such action could be taken in a way that makes the change explicitly temporary as well as promptly implemented,” Bernanke wrote in a letter to Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee.

If Congress were to raise the conforming loan limit, it should make the step “explicitly temporary as well as promptly implemented,” Bernanke wrote.

Frank released the letter Wednesday.

The Fed chief also suggested that the companies’ investment holdings be trimmed and tied to their goal of increasing access to affordable housing.

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