On Thursday, March 7, 2008 Federal officials took another step toward increasing the stability of the mortgage market in high-cost areas of the country like Santa Clara County by announcing new limits for the loans eligible for purchase by Fannie Mae and Freddie Mac.

The revised loan limits were among the goals of the economic stimulus package approved by President Bush last month.

The Office of Federal Housing Enterprise Oversight (OFHEO), which oversees Fannie and Freddie, said Thursday that the “conforming loan limit” will be increased from $417,000 to $729,750 in most Bay Area counties. They include Santa Clara, San Mateo, Alameda, Contra Costa, San Francisco, Marin and Napa counties. That new limit also applies in Santa Cruz, San Benito and Monterey counties.

The U.S. Department of Housing and Urban Development announced that the limit on loans backed by the Federal Housing Administration also would rise to $729,750 in those counties.

Both measures are intended to help increase home sales in high-cost parts of the country, where buyers typically use “jumbo” loans - those for more than $417,000, which are not guaranteed by Fannie Mae and Freddie Mac.

Local mortgage professionals say they still don’t know exactly when they will be able to fund loans at the new limits, and what the interest rates will be. Details are still being worked out among government agencies and lenders.

Fannie Mae and Freddie Mac buy bundles of mortgages from the lenders, then package them into securities that are sold to investors on Wall Street. Allowing Fannie and Freddie to securitize jumbo loans will bring down their rates, legislators hope.