by Calculated Risk on 6/24/2012 01:49:00 PM

From Carolyn Said at the San Francisco Chronicle: Refis on underwater jumbo loans nearly impossible

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.

... 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. ... "It makes me sick when I think about it. We could save between $800 and $1,200 a month," said Pieralde ...

Since their loan is from a private lender, their only options are 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, or 4) try to pay more each month and get the loan balance down.

Said gives an example of option 3:

[A] Half Moon Bay couple who ... bought their seaside home in 2005 for slightly more than $1 million with a seven-year adjustable-rate mortgage. Late last year, when they went to refinance, the home appraised at $730,000 - and they still owed $834,000.

So they took $140,000 out of their retirement and savings to pay down the mortgage enough to refinance into a 30-year fixed at 4.25 percent.

"We felt we were up against the wall," the woman said. 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."

This is a reasonable option for those with the resources ... but most people probably don't have the resources to make a large lump sum payment.

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