From your perspective as a distressed homeowner with a jumbo loan, the task can seem daunting. You don’t qualify for the Obama Making Home Affordable plan. There’s a good chance that you’re underwater on your home’s worth. With a large mortgage in an era of reduced income the monthly payments have become onerous.
Yet, let’s work back from the worst case scenario, foreclosure, where your lender takes back your home. Guess what? Your bank doesn’t want it, because it will be hard to sell. Although house sales have inched back up, home buying in the US is not reviving as much at the high end as at the low or middle. Much is driven by the first time home buyer credit. Most first time home buyers don’t qualify for jumbo loans.
Here’s another point to keep in mind. Simply because you have a jumbo loan now does not mean that you can’t qualify for a mortgage reduction under the Obama Plan. When the bill passed through Congress, Rep. Jackie Speier, (D-CA) got the program amended so that the administration backed loan modifications would apply to conforming loans at the time of modification, not origination. The limits have been raised recently and there is a good chance that your loan might now slip under the new ceiling where it can be guaranteed by the quasi-government agencies, Freddie Mac or Fannie Mae. In most markets, a conforming loan is now under $417,000. For high cost areas in the contiguous 48 states , the maximum conforming loan amount on a single family residence is $729,750.
We’ve already suggested one possible approach, doing a short-fi with your mortgage so it is refinanced as a conforming loan. If you still can’t get it under the conforming loan limit, then suggest a short fi to your lender. A good starting point for negotiation is 90% of the current mortgage. To give yourself some negotiating leverage, here’s how to get an approximation of your home’s current value.
The second strategy is a straight loan modification. There are no government subsidies in place to help lenders of jumbo loans, so the biggest incentive is your hardship. You’ve got to show that your financial hardship would lead to your lender being stuck with an unwanted piece of property in a difficult market, but by modifying your loan’s terms, you’ll be able to keep the payments flowing. Your argument will typically carry more weight than the average home owner because when you initially qualified for your jumbo loan you needed superior credit. Remember, loan mods typically cut interest, stretch out the term and only as a last resort, reduce the principal owed.
A survey of jumbo loan mods shows that they are being granted but with a significant difference. In many cases jumbo loan modifications are not permanent. Interest cuts tend to be for a fixed period of time, typically three years, until they slowly creep back to the original terms. Still, if a three year respite can help you keep your home while your income recovers, a jumbo loan mod is worth pursuing.