If you're wondering why raising conforming loan limits from $417,000 to $625,000 will help borrowers, here's one good reason -- California. Over one in eight U.S. residents lives in California, so what happens there, doesn't stay there.

With over 37,700,000 people, California is the most populated state and contains eight out of 50 of the most populated cities including Los Angeles, San Diego, San Jose, San Francisco, Long Beach, Fresno, Sacramento, and Oakland. There are about 7.9 million houses and condos in the state last month, and only about 25,500 sold in December. Compare that to 265,300,000 million people and 120.70 million housing units in the rest of the nation, where 4.86 million units were sold.

Statistically, 0.4 percent of U.S. housing was purchased in December. In California, statistically, zero homes changed hands.

Now, you begin to get an idea of the impact California has on the rest of the nation.

According to Dataquick, a real estate tracking firm, median home prices in California hit a peak last March/April/May with median homes selling at $484,000. By December, that figure had dropped to o $402,000.

With home prices and sales falling and jumbo loans at a full point higher than conventional loans, defaults began to rise. About 81,550 default notices were sent to California homeowners in December, up nearly 115 percent in the fourth quarter 2007 compared to the same period in 2006.

That's the fallout of high-risk loans originated between August 2005 and October 2006 resetting to much higher interest rates.

A year ago, 71 percent of homeowners in default were able to bring their payments current, refinance, or sell their homes to pay off their mortgage. In 2007, only 41 percent were able to emerge from the foreclosure process.

California is in a 27-month slide in housing sales, and home prices have returned to 2005 levels. December was the slowest sales month since Dataquick began keeping records in 1988, down 23.5 percent below the previous low of 17,272 sales in 1990.

In parts of the state, such as southern California, sales have hit 20-year lows, and are down about 41 percent from last year.

The California Association of Realtors says statewide, sales are down 33.4 percent and prices are down 16.5 percent.

Those are the kind of numbers investors like to hear, and the kind of numbers that signal a bottom is near.

Non-occupying buying activity is edging up, reports Dataquick, which suggests that investors are moving in for the kill.

California is one of the high-cost states that is expected to benefit most from the short-term raising of conventional mortgage loan limits, from $417,000 to $625,000.

Mortgage interest rates are a full point lower than in December.

If foreclosures can be significantly slowed down in California, housing sale should improve, and prices should firm.