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No Jumbo Loan Ruling

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Posted On: 09/26/2012

QUESTION:

I have jumbo loan of $900,000 and live in California. I’m currently considering loan modification or a short sale, because my house is appraised at $750,000. I understand interest rate reduction programs but can’t figure out how I get either a lower interest rate or a principle reduction. Where should I look?

ANSWER:

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The usual loan modification source is the government’s Home Affordable Modification Program. However, you do not qualify for at least one reason, and perhaps two.

First, to qualify for HAMP, you can’t owe more than $729,750 on your primary residence or single-unit rental property. At $900,000, you have a jumbo loan, and jumbo loans are not covered by HAMP.

Second, you do not mention having difficulty paying your loan. To get HAMP assistance, you must have “a financial hardship and are either delinquent or in danger of falling behind on your mortgage payments,” says the government. If you’re an investor, you must actually be delinquent to qualify.

Your loan is at the center of a debate in Washington. Under Wall Street reform, low-risk “qualified residential mortgages” now include FHA, VA and conventional mortgages. But does the definition of a QRM include or exclude jumbo mortgages?

Spokesman Walt Molony of the National Association of Realtors says, “The proposed rule discusses down payment size (loan-to-value ratio), debt-to-income ratio and credit history. It never discusses the size of the loan. Therefore, a jumbo loan could be defined as a QRM.”

Since we do not have a final QRM rule at this writing, we don’t know if a jumbo loan will be defined as a low-risk QRM or as a high-risk mortgage. The distinction is important because most lenders will not originate any mortgage that is not a QRM because of the liabilities they might face.

If the final rule excludes jumbo loans, then financing – and home values – in high-cost markets such as parts of California, New York, Illinois and Massachusetts will be sorely impacted.

Peter G. Miller is the author of The Common-Sense Mortgage and a veteran real estate columnist. Have a question? Please write to peter@ctwfeatures.com.

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