As you probably have already heard, the government is helping out the housing industry by raising the jumbo loan limit here in Santa Clara County from the previous $417,000 to $729,750. Woohoo! But as my friend Gabe Bodner at Lawson Associates points out on his blog, this may not be as helpful as we think.

According to Gabe, “…interest rates on conforming loans (and Jumbo loans) have risen anywhere from 0.5-1.0% in the last week (depending on the loan program). Therefore, conforming interest rates are close to what Jumbo rates were about 2 weeks ago which has negated much of the value in this whole loan limit increase package anyway.”

So, how will it help? The idea was that having Freddie Mac and Fannie Mae in the picture to secure bigger loans would give the lenders the confidence to lend more money. That is, assuming the loans would be bought by the government agencies. Not having these loan options in the past is what many believe created the exotic loan products that led to the sub prime fall out. In my opinion, the jumbo loan increase was long over due for California.

There are some restrictions related to these new loan options and we probably won’t see them in action until late summer. You can read more at Fannie Mae’s site. Like most, I will jump on this good news and hope that it allows more buyers to enter the market. With over 11 months of inventory in the Greater San Jose area, I will take a “maybe” over a “forget-about-it” any day.