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Refinancing underwater jumbo loans hopeless for most

New reports reveal that jumbo loans that are underwater are nearly impossible to refinance, leaving some homowners feeling alienated.

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Homeowners feeling alienated

Although there are slight hints that housing has been flirting with the bottom and may begin its painfully slow recovery, there are some groups of homeowners that are feeling alienated as waves of supposed relief hit the market in the form of the historic $25 billion mortgage settlement and other settlements trickling in by the week.

The San Francisco Chronicle reports that refinancing underwater jumbo loans has become nearly impossible. Carolyn Said at the Chronicle interviews a frustrated San Francisco family. “The four-bedroom split-level they bought for $799,000 has plunged in value to $566,000 – and they owe $648,000. … The couple, who have perfect credit, don’t want to blemish it by walking away from the house or doing a short sale.”

Trapped in a high rate mortgage

Said notes that “they’re trapped in a mortgage with a 6.375 interest rate – sky-high compared with current rates, which average 3.7 percent – and they can’t refinance because their house is underwater and their jumbo mortgage is excluded from government plans for underwater refis.”

The homeowner tells The Chronicle, “It makes me sick when I think about it. We could save between $800 and $1,200 a month.”

Four options available, few are reasonable

Bill McBride at the CalculatedRiskBlog.com said that since their loan is from a private lender, they have four options. In McBride’s words:

  1. Walk away (they can afford the payments and don’t want to walk away)
  2. Try to talk the lender into refinancing (good luck)
  3. Pay down the loan in one lump sum enough to refinance
  4. Try to pay more each month and get the loan balance down

Draining savings and retirement accounts

Said reports on a couple who tried the third option offered above, buying their home in 2005 for just over $1 million with a seven-year adjustable rate mortgage, and when they went to refinance late last year, the home appraised at $730,000. They still owed $834,000. The couple resorted to taking $140,000 out of their retirement and savings to pay down the mortgage enough to refinance into a 30-year fixed rate mortgage at 4.25 percent.

“We felt we were up against the wall,” the woman told The Chronicle. Refinancing “would bring our interest rate down and save a lot of money over the life of the loan. It was a hard decision but we made the financial calculation that it was worth it.”

Even homeowners with perfect credit and perfect payment history are feeling alienated, as the mortgage settlements are not tailored to reach them, nor is any plan, and the assumption by the masses tends to be that if they had such a big loan, they probably have the money to cough up a lump sum, which is not necessarily true. For now, underwater jumbo loans are stuck underwater, as more homeowners are reporting their options for refinancing are slim to none.

Tara Steele is the News Director at The American Genius, covering entrepreneur, real estate, technology news and everything in between. If you'd like to reach Tara with a question, comment, press release or hot news tip, simply click the link below.

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2 Comments

2 Comments

  1. Amith

    July 5, 2012 at 1:33 am

    Great post ! thanks for the valuable information..

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Austin

Austin tops the list of best places to buy a home

When looking to buy a home, taking the long view is important before making such a huge investment – where are the best places to make that commitment?

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Looking at the bigger picture

(REALUOSO.COM) – Let us first express that although we are completely biased about Texas (we’re headquartered here, I personally grew up here), the data is not – Texas is the best. That’s a scientific fact. There’s a running joke in Austin that if there is a list of “best places to [anything],” we’re on it, and the joke causes eye rolls instead of humility (we’re sore winners and sore losers in this town).

That said, SelfStorage.com dug into the data and determined that the top 12 places to buy a home are currently Texas and North Carolina (and Portland, I guess you’re okay too or whatever).

They examined the nerdiest of numbers from the compound annual growth rate in inflation-adjusted GDP to cost premium, affordability, taxes, job growth, and housing availability.

“Buying a house is a big decision and a big commitment,” the company notes. “Although U.S. home prices have risen in the long term, the last decade has shown that path is sometimes full of twists, turns, dizzying heights and steep, abrupt falls. Today, home prices are stabilizing and increasing in most areas of the U.S.”

Click here to continue reading the list of the 12 best places to buy a home…

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Housing News

Average age of houses on the rise, so is it now better or worse to buy new?

With aging housing in America, are first-time buyers better off buying new or existing homes? The average age of a home is rising, as is the price of new housing, so a shift could be upon us.

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The average home age is higher than ever

(REALUOSO.COM) – In a survey from the Department of Housing and Urban Development American Housing Survey (AHS), the median age of homes in the United States was 35 years old. In Texas, homes are a bit younger with the median age between 19 – 29 years. The northeast has the oldest homes, with the median age between 50 – 61 years. In 1985, the median age of a home was only 23 years.

With more houses around 40 years old, the National Association of Realtors asserts that homeowners will have to undertake remodeling and renovation projects before selling unless the home is sold as-is, in which case the buyer will be responsible to update their new residence. Even homeowners who aren’t selling will need to consider remodeling for structural and aesthetic reasons.

Prices of new homes on the rise

Newer homes cost more than they used to. The price differential between new homes and older homes has increased from 10 percent traditionally to around 37 percent in 2014. This is due to rising construction costs, scarcity of lots, and a low inventory of new homes that doesn’t meet the demand.

Click here to continue reading this story…

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Housing News

Are Realtors the real loser in the fight between Zillow Group and Move, Inc.?

The last year has been one of dramatic and rapid change in the real estate tech sector, but Realtors are vulnerable, and we’re worried.

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Why Realtors are vulnerable to these rapid changes

(REALUOSO.COM) – Corporate warfare demands headlines in every industry, but in the real estate tech sector, a storm has been brewing for years, which in the last year has come to a head. Zillow Group and Move, Inc. (which is owned by News Corp. and operates ListHub, Realtor.com, TopProducer, and other brands) have been competing for a decade now, and the race has appeared to be an aggressive yet polite boxing match. Last year, the gloves came off, and now, they’ve drawn swords and appear to want blood.

Note: We’ll let you decide which company plays which role in the image above.

So how then, does any of this make Realtors the victims of this sword fight? Let’s get everyone up to speed, and then we’ll discuss.

1. Zillow poaches top talent, Move/NAR sues

It all started last year when the gloves came off – Move’s Chief Strategy Officer (who was also Realtor.com’s President), Errol Samuelson jumped ship and joined Zillow on the same day he phoned in his resignation without notice. He left under questionable circumstances, which has led to a lengthy legal battle (wherein Move and NAR have sued Zillow and Samuelson over allegations of breach of contract, breach of fiduciary duty, and misappropriation of trade secrets), with the most recent motion being for contempt, which a judge granted to Move/NAR after the mysterious “Samuelson Memo” surfaced.

Salt was added to the wound when Move awarded Samuelson’s job to Move veteran, Curt Beardsley, who days after Samuelson left, also defected to Zillow. This too led to a lawsuit, with allegations including breach of contract, violation of corporations code, illegal dumping of stocks, and Move has sought restitution. These charges are extremely serious, but demanded slightly less attention than the ongoing lawsuit against Samuelson.

2. Two major media brands emerge

Last fall, the News Corp. acquisition of Move, Inc. was given the green light by the feds, and this month, Zillow finalized their acquisition of Trulia.

…Click here to continue reading this story…

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Emerging Stories