Higher conforming loan limits could help clear the San Francisco Bay Area market of foggy conditions caused by a stubborn system of high-cost jumbo mortgages.

The Bay Area's home sales ended 2007 down more than 39 percent in December compared to a year ago, the 35th consecutive such decline. Prices dropped 5 percent for the December-to-December period, according to DataQuick Information Services.

Statewide, California's home sales were off more than 33 percent, according to the California Association of Realtors.

One of the reasons the high-cost San Francisco Bay Area's nine-county housing market is in freefall is because the median price of homes in the region is well above the conforming loan level.

The conforming loan level is the level at which Fannie Mae and Freddie Mac will buy mortgages from lenders to repackage them as securities which, in turn, investors buy.

Fannie and Freddie don't purchase larger mortgages because their size makes them riskier. To offset that risk, lenders charge higher mortgage interest rates -- as much as two percentage points higher.

The Bush Administration's plan to reignite the economy by putting tax rebates in the hands of hopefully spend thrifty consumers, also includes a provision to increase the conforming loan level. That could make it more affordable to buy a home in high-cost housing areas like the San Francisco Bay Area.

If passed, the legislation could boost the conforming level as high as $730,000, making more larger loans cheaper in the San Francisco Bay Area and other high cost areas.

Cheaper loans would give more buyers greater affordability opportunities to buy homes.

Stefan Walker, an Alain Pinel realty agent in Los Gatos, CA, says if the limits are raised it would be a real shot in the arm to the housing sector, especially for the local, entry-level market that is suffering most in California's Silicon Valley area.

Published: February 4, 2008

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A journalist for 35-years, Broderick Perkins parlayed an old-school daily newspaper career into a digital news service offering editorial content and consulting services. Perkins' San Jose, CA-based DeadlineNews Group includes the flagship news site, DeadlineNews.Com, offering real estate, personal finance and consumer journalism, and a backshop, the Deadline Newsroom.