Will you Benefit from the New FHA limits?

The US Senate passed an expanded version of HR 5140 - an economic stimulus package that includes a temporary increase in the conforming loan limits from $417,000 to as high as $729,750 in high cost areas.  It is expected to be passed by the House and signed into legislation. The emphasis here is on temporary.

So how does this affect you and the markets you are in? I'm a member of the CMPS Institute and they have released some quick guidelines; 

"The two things you must know in order to determine if you are in a high cost area:

1.  You must know the formula.  If 125% of the local area median home price exceeds $417,000, the temporary loan limit would be that 125% of the median home price with a cap of $729,750. 

2.  You must know the median home price in your area.  According to HR 5140, the Secretary of Housing and Urban Development will publish the median house prices within 30 days.  We contacted the Public Affairs office of HUD directly to ask if there is anything definitive to reference in the interim, and they said, "no."  The Wall Street Journal published median house prices recently, and you may want to reference this information to get an idea of which areas will exceed the $417,000 limit.  The median housing prices can be found in the second graphic on this web page.  In order to see the median housing price in descending order, click on Price ($) in the chart. "

As an example, in my area, Portland OR, the median home price is $297,629. Using the formula, we would arrive at the following

Median Home Price:       $297,629
Temporary Factor:               125%

Temporary Loan Limit:   $372,036

In our case, the old limit of $417,000 stays in effect.

If the HUD uses current published prices, the median Home Price is going to need to be at least $335,000 for you to be able to refinance a Jumbo loan into a conforming loan.

My 2 cents: While this will help some of the hardest hit areas, it still falls short. Areas with a lot of low priced home skew the median home price. In every market there are pockets of areas that are more expensive then others. It also doesn't necessarily account for the average income in an area. We have a lot of high priced home that won't move, in large part due to Jumbo pricing and the inability to get 2nd mortgages.

Anyway, for those of you that will see relief, go to work!!

Let me know how these changes affect you.

Update: Andy Perry caught an error in my calculation so I corrected it. Thanks Andy