Just a few weeks ago it wasn’t clear that Freddie Mac and Fannie Mae would follow President Bush’s lead and raise their conforming loan threshold (click here for the background story).  But a few days ago it was announced that Freddie Mac and Fannie Mae raised the conforming loan threshold in 71 metropolitan areas and 21 rural counties. 

The threshold increase allows Freddie Mac and Fannie Mae to purchase loans as high as $729,750 (even higher in certain spots in Hawaii — for those of you lucky enough to be house shopping there!).  If you’d like the background on how Freddie Mac and Fannie Mae affect mortgage rates, click here.

The increase applies for the rest of this year (2008) and also applies retroactively to loans originated after July 1, 2007.  On January 1, 2009 the conforming loan limit reverts back to its previous amount of $417,000.

A few observations in no particular order:

As I discussed here, the threshold increase occurs on an area-by-area basis and depends on the median housing price in each area.  The threshold in each area is 1.25 times the median price, up to the maximum of $729,750.  Many areas increased to the maximum.  Other areas increased, although not to the maximum.  And other areas did not increase at all.  Here is the list of area-by-area limits.

Loans that were previously considered “jumbo” may be conforming loans now.  If you were shopping for a jumbo loan last week, you may be shopping for a conforming loan this week. 

According to this article it’s not clear when lenders will be able to offer loans using the higher limits.  Hopefully soon.   

If you currently have a jumbo loan and your house would now qualify for a conforming loan, watch mortgages rates to see if refinancing might be advantageous.

It is interesting that the change is retroactive to July 1, 2007.  If you took out a jumbo loan in late 2007, your loan may now qualify as a conforming loan.  Whoever holds your loan could presumably sell the loan to Fannie Mae or Freddie Mac. 

Something tells me you’re not going to get a lower interest rate, however.  If you’re in this situation, keep an eye on the rates to see if refinancing may get you a better rate.

I discovered that Silicon Valley has the highest median house price in the country at $845,300 as of the 4th quarter of 2007.  Silicon Valley is even higher than the San Francisco-Oakland-Fremont area ($777,300), and blows Orange County ($657,400) and Honolulu ($625,300) out of the proverbial water.  If you want to see the numbers, open this excel file and sort Column J from highest to lowest. 

I have mixed feelings about living at the top of that list.  It’s nice to live in a popular area.  It’s not nice to pay the cost of living.  I would feel better if I owned a home big enough for kids.  I don’t.