FHA raised its loan limits for single family residence to $729,750. 

What does this mean to you? 

For most of California this will have little impact.  The primary reason is that the underwriting guidelines are more strict than loans in the lower price range.  FHA is accepting larger loan amounts but the guidelines require better scores, more down and tougher appraisals.  Furthermore, FHA loans are full doc only.  The higher percentage of loans closed in California above $500,000 were done through stated income product with little or no money down.  Those same loans are currently facing reduced property values which will not meet the FHA loan to value guidelines.  

The pressure becomes two fold.  The property values are upside down and the consumer can’t qualify based on full doc programs.  The government has acted two little two late in fixing this mess.  The  fix  will come from  the  market  itself.

There will be some that have the good fortune to benefit from this change.  A few in the higher price range and most in the lower price range between $300-550K.   In addition units  will see a  nice  bust  in  needed  loan  flexibility.