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Could the proposed increase in conforming and FHA loan limits help you?  The short answer is maybe.

The economic stimulus package was passed by the Senate and Congress and now waits for President Bush's signature.  It contains a proposal to increase the conforming loan limit for Fannie and Freddie loans in high cost areas of the country, such as New York, New Jersey, Illinois, California, Hawaii, Massachusetts, and others.  The limit could be as high as $729,000.  It also proposes to raise FHA limits to as much as $729,000.  The Fannie and Freddie increase would be temporary, through December 2008, and the FHA limit would be permanent.

What the exact limits will be and what exact areas would benefit from this remain to be seen.  The Secretary of Housing and Urban Development (HUD) would have to determine the median home price for various housing markets before the exact loan limits are set.  They are saying this will happen no later than 30 days after passage of the bill.

For those in high cost areas, like California, this could provide much relief for folks whose payments adjusted and need to refinance.  This is especially true if they are in a declining market where the maximum loan to value was cut by 5%.  Jumbo ltvs (loan to value) are less then conforming, jumbo rates are higher, and debt ratio restrictions for jumbos are tighter.  So all those people that once were limited by a jumbo loan would now be considered conforming and have a better chance to qualify to refinance. 

The doom and gloomers will point out that for the homeowners that are upside down in their loans due to their property value decreasing, this measure will not help.  This is true.  Also, lenders could very well still make rates higher for loans over 417,000 or put some other restrictions on those loans making it not as easy as it seems to refinance. 

What about our local area of Las Vegas?  The increase in FHA loan limits should help some homeowners.  Since we are not considered a high cost area, it's not clear yet if the conforming changes will affect us or not.  Until HUD determines the new median home prices, how many people this may help remains to be seen.

For areas that it does affect, homebuyers will benefit too as they will be able to get better interest rates, with less money down for the home they really want.  Since the measure so far is temporary, it should spur homebuyers into making the decision to buy this year.  With rates still low it's an excellent incentive.  More buyers means more demand for homes, which eventually leads to home values increasing again over time.