Conforming Loan Limits

So i am in the market for buying a house and in recent weeks my wife and I found two places we like. I was then checking into see the conforming loan limits for 2010. I am amazed at what I found out. One of the houses (let's call it house A) we are interested in is in the normal limits, aka, $417,500, and the other one (let's call it house B) locates in the so called high cost area, hence the limits is set to $625,000. 

First, I am surprised cause we think house A is in a better location, the township is nicer; there is a very large relative new community near by with many houses in the range of $800K-$900K. As I did more research it turns out the loan limits is not set for each township but for a whole county. House A's county has many shabby townships (aka, many cheap houses) that drag the average price down even though house A's township is very nice and in a completely different category with other townships in the same county. You see where I am going? When a policy is set very generic, covers many places and not chance of localization it bounds to have all this kind of illogical situation. 

Second, what and who does this high cost area high conforming loan limits policy try to help? If a person qualifies for a $625,000 loan he is certainly well off and the least person that needs extra government help. I could understand the government has duty/obligation to help poor people/weak people but this high conforming loan limits certainly is not set to help such people. 

Third, we could argue that there is a need right after the huge crash after Lehman Brothers fiasco.  How long would this policy last? Isn't it time to terminate this kind of artificial limits? To be fair to the earlier localization propose, we should be able to make any loan that has a loan to value ration less than 70% to be a conforming loan. 

So the conforming loan limits could be set:
1. a certain fixed amount ($417,000 for 2010) that would adjust for inflation. It should still requires at the loan to value ratio not exceeding 80%
2. and loan that is less than 70% of the value.
3. No more loan limits. There is no business for the government to sponsor GSEs at all.

It is a shame that FinReg bill doesn't address this issue. 

Don't you love New York in the fall? It makes me wanna buy school supplies. I would send you a bouquet of newly sharpened pencils if I knew your name and address. On the other hand, this not knowing has its charms.-- From You've Got Mail, by Joe Fox