Today's Mortgage Rates

Jumbo Loan Delinquency: The Worst Is Yet To Come?

New information on the number of jumbo prime loans that are delinquent was released and this morning on CNBC, David Faber covered the topic. Faber essentially explains the highlights from a new report from Fitch about the rising delinquency numbers for prime borrowers who have jumbo loans.

Highlights Include:

• Currently across the nation, prime jumbo loan delinquencies that are more than 60 days late reached 9.2%
• Loans are from ’06, ’07 generally
• The states with the highest delinquency rates include California, New York, Florida, Virginia, New Jersey
• Negative equity seems to be more of a predictor of delinquency than even when someone loses their job

As the number of jumbo prime loans that are delinquent goes higher, it may not be a good sign of those things to come in the housing market.

Anyone who currently has a jumbo loan and has been trying to work with their lender knows that the “Obama loan modification plan” doesn’t really apply to them – because they have  a jumbo loan.

Which means that whether or not someone with a jumbo loan gets a loan modification done is really going to depend on the lender – and it may even vary with a particular lender — based on whether or not the jumbo loan has mortgage insurance on it.

Let’s say that someone bought a $2 million dollar house in 2006 and put $400k down. This means that they were at a 80% loan-to-value ratio – and under most circumstances back in the day, the borrower would not be required to pay mortgage insurance on the loan.

But it doesn’t mean that there isn’t mortgage insurance on the loan.

With jumbo loans, many times the bank that holds the loan will go ahead and buy mortgage insurance on the loan because of the higher loan amounts. So while the borrower isn’t paying mortgage insurance on the loan, it doesn’t mean that there isn’t mortgage insurance on the loan.

Fast forward to 2009 and the house that they bought for $2 million in 2006 is now worth $1 million.

And the borrower owes $1.5 million and is struggling to make his payments.

And the bank has mortgage insurance on the loan where if the borrower defaults, the bank will get paid $1.5 million from the mortgage insurance company.

Will the lender approve a loan modification when these circumstances are in place?

Will the lender approve a short sale if these circumstances are in place?

Usually not. At least, not from what I have seen.

So if you currently have a jumbo loan and are looking for a loan modification or a short sale – one of the first things you should try to find out is whether or not the bank has mortgage insurance on your loan.

Because it will impact the chances of having success with a loan modification or short sale.

More than you may think.