Jumbo Help

But the Stanford Group Company, a policy research firm in the District, estimated that if the cap is based on median prices compiled by the National Association of Realtors, locally it would be about $500,000 and would apply to an area that extends into West Virginia.

"While not every American is going to get to enjoy a higher loan limit, what makes this program exciting is that those who need the assistance the most are going to get it," said Jaret Seiberg, an analyst at Stanford Group. "There are markets where the average home price is well below $417,000, so they do not need any kind of boost."

Lower rates would help Galloway, the Charles County homeowner. She owes about $448,000 on her house. She has an adjustable-rate mortgage and wants to refinance before that loan resets, possibly to a higher level.

But just as she was about to get a new loan, the jumbo rates started climbing and never stopped. In the past, lenders charged about 0.25 percentage point more for 30-year, fixed-rate jumbo loans than they did for smaller loans that conform to Fannie Mae and Freddie Mac standards. But the spread has widened since August to nearly a full percentage point, according to HSH Associates.

Last week, the rates on conforming loans averaged 5.77 percent, while those on jumbo loans averaged 6.7 percent.

Although the aim of the changes is to reduce that gap, investors have become so skittish about jumbos that there's no telling how they will react if the large loans are mixed in with more traditional conforming loans, several industry analysts said.

Why should the average consumer care how investors react?

Because when Fannie Mae and Freddie Mac buy these loans from lenders, they sell them to investors on the secondary market.

If investors feel that the larger loans inject too much risk into the pool of mortgages offered to them, they will demand a higher yield, which translates to higher rates for borrowers, said Ajay Rajadhyaksha, head of U.S. fixed-income strategy at Barclays Capital.

The perceived risk is not a creditworthiness issue, Rajadhyaksha said. Rather, it's the jumbo borrowers' well-documented fondness for refinancing when rates drop, which forces investors to reinvest the money at a lower rate.

"The investor will still be wary of [jumbo loans] even if they come with a Fannie or Freddie guarantee," Rajadhyaksha said. He said he expects the spread between existing jumbos and conforming loans to return to about 0.25 percentage points.

Nicolas Retsinas, director of the Joint Center for Housing Studies at Harvard University, said the spread could narrow from about a percentage point to 0.50 to 0.75. "That can be a pretty big number because we're talking about markets with expensive homes."

For instance, a half-percentage-point drop in the rate on a $500,000 mortgage shaves about $200 off monthly payments, said Retsinas, who serves on Freddie's board.

But even if rates drop, not everyone will be able to take advantage of them, Retsinas said. Potential borrowers with less-than-stellar credit will be turned away from any kind of loan these days, as will people who owe more on their mortgages than their homes are worth.

Galloway said that she fits the profile of an on-time borrower lenders want to work with and that she can't wait to see what the new loan limits might mean for her family.

Galloway and her husband have four children, ages 8 to 18, and the oldest is headed to college.

"At this point, I'll take any savings I can get," she said.