It’s not who you know, but who you owe that determines whether you can modify a jumbo mortgage. Because of their size, jumbo mortgages are often ineligible for the federal government’s housing assistance programs. This forces you to rely instead upon the benevolence of a private lender. Even if you are eligible for government assistance -- or have a compassionate lender -- you must still endure a rigorous application process meant to winnow out borrowers whose income is too little or too much.
Jumbo mortgages exceed the maximum guarantees made by Fannie Mae or Freddie Mac. These government-sponsored enterprises cannot guarantee loans of more than $417,000, except in specifically-designated high-priced real estate markets. The limit for a guaranteed “conforming” loan tops out at $729,750, which also is the highest amount allowed under the federal government’s Home Affordable Modification Program (HAMP). Contact the mortgage servicer who collects your monthly payments to see if it participates in HAMP, and if you might be eligible.
As non-conforming loans, jumbo mortgages can – and typically do – carry higher interest rates because lenders can more easily bundle and sell government-backed, “conforming” loans to investors. Additional risk brings extra scrutiny. If your loan exceeds $729,750, or the limit for your market, any modification will be at your lender’s discretion. A lender's eligibility standards and relief methods might differ from HAMP. Ask what, if any, in-house assistance is available.
Your lender wants to ensure that if she modifies your loan,she will not eventually lose money. A modified mortgage cannot exceed a set percentage of your monthly gross (pre-tax) income. Similarly, lenders want to ensure that you can’t first dip into savings to pay your current mortgage. Lenders can lower your payment to 31 percent of gross income through HAMP, but a private lender might accept a higher percentage. Prepare to provide proof of income, perhaps for two years or more, including paychecks and tax returns.
Common modification methods include lowering your interest rate, reducing your principal, extending the length of your loan and tacking missed payments onto the back of the mortgage. Regardless of which, if any, of these modifications your lender uses, he will want the returns to justify the means. Foreclosure can be expensive and uncertain, particularly given the large amounts outstanding in jumbo mortgages. But it can also be expensive to reduce your debt and potentially forego hundreds of thousands of dollars in principal and interest that the lender might otherwise have collected under your original loan.
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