Can you get a loan modification on a jumbo mortgage? The answer
is yes, but there are some significant differences from getting a
mortgage modification on a conventional loan.
Some people may think they can't get a loan modification on a
jumbo mortgage because they're not allowed under the government's
Home Affordable Modification Program (HAMP), which is for
conforming mortgages only.
More options than just HAMP
But while HAMP is probably the best-known loan modification
program, it's not the only one out there. In fact, the great
majority of borrowers who get mortgage loan modifications do so
outside of HAMP, through private loan modifications arrangements
negotiated with their lender.
Even if you have a jumbo mortgage, you're not necessarily
excluded from HAMP if you live in a high-value area. What matters
is whether you have a "conforming" mortgage, i.e., guaranteed by
Fannie Mae or Freddie Mac, as most home loans are.
The standard limit on Fannie Mae and Freddie Mac mortgages is
$417,000, although until recently it went as high as $729,750 in
areas with higher real estate values. These higher value
"conforming jumbos" are still eligible for HAMP, but only if your
mortgage was conforming to begin with - if your mortgage was
originally for $900,000 but you've now paid it down to $400,000,
you don't qualify for HAMP, since your mortgage wasn't guaranteed
by Fannie or Freddie to begin with.
Private loan modifications
A private, or proprietary, loan modification worked out with
your lender is a real possibility, however. Foreclosures are very
costly for lenders, so if you're in genuine financial distress and
unable to keep up with your mortgage payments, it's often in their
interest to work something out with you.
The best type of loan modification is one that lowers your
monthly mortgage payments, making it easier for you to keep up.
This is typically done by either lowering your interest rate or
extending the term of your loan, or a combination of both. In some
cases, the interest rate reduction is temporary, say for five years
or so, allowing some time for your finances to recover before your
payments go back up again.
Not all private loan modifications reduce your mortgage
payments, however (although it is required under HAMP). Often,
lenders will simply agree to restructure your mortgage to allow you
to make up for a period of missed payments, in which case you may
actually end up paying more each month.
In other cases, they may simply agree to tack the missed
payments (along with any penalties and additional interest) onto
the back end of the loan, so your payments don't increase and you
don't have to make up any deficits until the mortgage is nearly
paid off. In some cases, they may agree to waive penalties
altogether, if that will help bring you back on a regular payment
Getting your lender to agree
One advantage that jumbo loan borrowers have when seeking a loan
modification is that a foreclosure for them is going to be a lot
more costly for the bank than a conventional mortgage would be - so
your lender has an added motivation to work with you.
However, they're going to want to be sure you really can't
afford your current payments - if they decide your debt load is
manageable on your current income, or if you still have savings or
investments you can tap, they'll likely be reluctant to grant you a
modification at this time.
Some banks may be reluctant to grant a mortgage loan
modification of any kind until the borrower is clearly in financial
distress and starts missing payments. As a result, some financially
pressed homeowners start to skip payments deliberately, to try to
force the bank's hand. It's a risky strategy at best - basically a
game of chicken - and one that will do serious damage to your
credit that will take up to seven years to recover from.
Don't overlook refinancing
Getting a mortgage loan modification typically will do at least
some damage to your credit, since you're not fully meeting the debt
obligation. For that reason alone, it's always best to first try to
refinance the mortgage if you need to reduce your monthly
Refinancing, if you can do so, doesn't hurt your credit and,
with interest rates as low as they are, can even provide better
terms than a loan modification can. However, if you're going to
refinance, you need to do so before you get into serious financial
difficulty, or you won't be able to qualify.