Actually, the loan limits are not dropping, they are just sunsetting the temporary limits that were never meant to be permanent.
On, February 13, 2008, The Economic Stimulus Act of 2008 was signed by then President Bush and temporarily raised GSE limits to a max of $729,750. During the time of this act, then President George W. Bush also signed The Housing and Economic Recovery Act of 2008 which authorized the GSEs to acquire loans as large as $625,500 as of January 1, 2009, (the proposed sunsetting of the stimulus act) by permanently raising the conforming loan limit for "high-cost areas".
The American Recovery and Reinvestment Act of 2009 was signed by now President Obama on February 17, 2009. This bill temporarily reinstated the loan limits that were enacted by the February 13, 2008 Economic Stimulus Act of 2008, signed by President Bush and is due to expire on September 30, 2011. After that date, The Housing and Economic Recovery Act of 2008 will prevail with a maximum GSE limit of $625,500 which is the actual law.
Just a FYI with time lines.