“We’ll just refinance” strategy backfires on jumbo mortgages too

A lot of subprime borrowers found their "We’ll just finance in a couple of years when the house appreciates" strategy backfired on them.  Increasing numbers of jumbo purchasers are finding themselves in the same boat:

[Borrowers] are becoming trapped by the same issue facing the poorest subprime homeowners: falling home prices erase equity and make it impossible to sell or refinance without losing money.

The number of U.S. homes valued at more than $729,750, the jumbo-loan limit in the most affluent areas, entering the foreclosure process jumped 127 percent during the first 10 weeks of this year from the same period of 2008, data compiled by RealtyTrac Inc. of Irvine, Calif., show. The rate rose 72 percent for homes valued at less than $417,000 and 78 percent for all homes, RealtyTrac said.

“It’s the trickle-up effect,” said David Adamo, chief executive officer of Luxury Mortgage Corp., a home-loan bank in Stamford, Conn. “Just like homeowners in smaller homes, these homeowners anticipated being able to refinance mortgages to continue making payments and at a future date sell for a gain and put it toward their next home. That strategy backfired when the market for jumbo mortgages dried up.”

……..

“There was this unrealistic view that the crazy financing was limited to subprime when of course it was across the board,” said Andrew Laperriere, Washington-based managing director at research firm International Strategy & Investment Group. “A lot of jumbo mortgages were nothing down with high debt-to-income ratios.”

All of the government foreclosure prevention programs out there are geared for conventional loans:

President Barack Obama’s Homeowner Affordability and Stability Plan has no provision to help jumbo mortgage borrowers. The plan focuses on shoring up home loans eligible to be bought by Fannie Mae and Freddie Mac, also called conforming loans.

“The government has thumbed their noses at people who have jumbo mortgages,” said Steve Habetz, president of Threshold Mortgage Co. in Westport, Connecticut.

I wouldn’t be surprised though, if we don’t see such a program before too long. Does anyone have a good name to suggest for the yet to be announced "McMansion Affordability And Foreclosure Prevention" program?

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