Higher loan limits, set by the federal government as part of an economic stimulus package early this year, were supposed to make jumbo loans more affordable in expensive housing markets. Rates finally have come down on these so-called "jumbo conforming" mortgages, though these loans likely will remain hard to get for most borrowers.

Jumbo-conforming loans range in size from $417,000 to nearly $730,000 and are especially important in expensive housing markets. A small condominium or modest first home can cost upward of $500,000 in markets such as Los Angeles, San Francisco, Alexandria, Va., New York and other costly locales.Depending on the buyer's credit score, the appraised value of the home and the condition of the real estate market in the area, there are three types of jumbo-conforming loans to consider.

The three types of jumbo-conforming loans
• Agency jumbo-conforming loans, which meet, or "conform to," Fannie Mae or Freddie Mac guidelines and can be sold to those secondary market corporations, or "agencies."
• FHA jumbo-conforming loans, which meet guidelines set by the Federal Housing Administration, or FHA, a U.S. Department of Housing and Urban Development agency that guarantees home loans.
• Bank jumbo loans, which needn't conform to agency or FHA guidelines."Consumers need to look at all three of those (loan types) because their particular circumstances may make one or another of those options the better option for them," explains Frank Sillman, CEO of Indymac Mortgage Bank in Pasadena, Calif. Loan limits top out at $729,750Until recently, Fannie Mae and Freddie Mac weren't authorized to purchase loans of more than $417,000 except in a few, very expensive housing markets.

The new limits are based on a percentage of the median home price in each county and can reach up to $729,750 in the priciest areas.Borrowers who might seek agency jumbo-conforming loans
• They want to borrow more than $417,000, but less than the local conforming loan limit.
• They have a down payment of at least 20 percent of the sale price, or a combined loan-to-value, or LTV, ratio of 80 percent of the home's current appraised value.
• They don't want to pay for mortgage insurance, which protects the lender if the borrower defaults on the loan.
• They have a FICO credit score of at least 660.
• They live in an area that lenders haven't flagged as a declining-value market."If you want to refinance and are under 80 percent LTV, it doesn't make sense for you to pay mortgage insurance," Sillman says.New pricing narrows interest-rate gapWhen the new jumbo-conforming loans were announced, there was an expectation that the rates would be similar to those for conforming loans. But for the first six weeks of the jumbo-conforming loans' existence, they were priced closer to regular jumbo loans. That mean the rates were often half a percentage point higher or more.

For example, at the beginning of May, a borrower in Los Angeles might have been able to get a conforming loan for $400,000 at 6.125 percent, and a jumbo-conforming loan for $450,000 at 6.75 percent.Finally, in the second week of May, Fannie Mae CEO Daniel Mudd announced that the company would price conforming and jumbo-conforming loans identically. Rates dropped abruptly on jumbo-conforming mortgages.

This week, the rate difference between conforming and jumbo-conforming has been anywhere from negligible to a quarter of a percentage point.Before the change, says Dick Lepre, loan consultant with Residential Pacific Mortgage in San Francisco, "their pricing was 'We don't want to do these loans' pricing.They changed their minds, and the difference was sudden and large. The difference to me was not doing loans and then doing loans."