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Washington is trying to ease the mortgage crisis by helping people refinance into home loans with better terms. But one group is being left on the sidelines: borrowers with loans too big to qualify for government backing.

President Barack Obama’s housing stability plan, announced last week, excludes such borrowers from nearly all of its mortgage-bailout provisions. Instead, it focuses on middle-income consumers who have lower, so-called conforming loans. Such loans top out at $417,000 in most parts of the country, though they can run as high as $729,750 in certain pricier markets, such as parts of California, New York and Hawaii.

Neil Littman, who lives near Boulder, Colo., says conforming-loan limits in the area are too low.

Anything bigger is called a “jumbo” loan — and not only is the government ignoring this segment of the market, so are lenders, few of whom are originating or refinancing jumbo mortgages. The reason: Jumbo loans are too large to be guaranteed by a government-backed mortgage agency, such as Fannie Mae or Freddie Mac, meaning banks assume the risk if the loan goes bad. In the current lending environment, few banks want to take on any risk.

That’s hurting borrowers like Pete Zipkin, who’s the kind of affluent customer that banks once coveted. The 35-year-old technology executive — who says he has a spotless credit record and at least 20% equity in his home — has come up empty-handed in his search for a jumbo mortgage of more than $1 million for his recently built five-bedroom home in Alamo, Calif., near San Francisco.

Unable to find a fixed-rate mortgage when his construction loan expired last fall, Mr. Zipkin now has a variable-rate loan that adjusts monthly. The rate is currently 5%, but it can go as high as 12%. He says banks have turned him down in part because they are worried about falling home prices in California, even though price declines in Alamo, where the median home price is $1.3 million, have been less severe than in the rest of the state.

“If somebody has the income, the equity and the credit rating,” they should qualify for a loan, Mr. Zipkin says.

‘Buying Down’ a Mortgage

Many homeowners in high-priced markets are experiencing similar difficulties, and are left with few options other than to raid their savings or retirement accounts and use the cash to “buy down” their mortgages. In some cases, home buyers need to put up a large down payment, often 25% or more, to qualify for a jumbo mortgage. Others are bypassing jumbos altogether and putting up enough cash to become eligible for a lower-rate conforming loan.

“Every single day I’m talking to people who have a jumbo loan, and I can’t do anything for them,” says Jeff Lazerson, a mortgage broker in Laguna Nigel, Calif.

While total mortgage originations fell by 17% in the fourth quarter from the previous quarter, jumbo originations fell by 42% to $11 billion, according to Inside Mortgage Finance. That’s the lowest volume ever tracked by the trade publication, which has figures dating to 1990.

ING Direct, a unit of ING Groep NV, is one of the few lenders that is boosting jumbo originations, though it requires a minimum 30% down payment in the most expensive housing markets, up from 20% earlier last year. For condos, ING requires a minimum 45% down payment.

“If you have been able to … save for a down payment, that to us speaks volumes about your character,” says Bill Higgins, ING’s chief lending officer.

Like most jumbo lenders, ING offers mainly “hybrid” adjustable-rate mortgages that carry a fixed-rate for five or seven years and then reset annually to an adjustable rate. ING is offering initial rates as low as 5.5% for a seven-year adjustable-rate jumbo mortgage. Last week, the average for a 30-year conforming mortgage was 5.22%, according to HSH Associates, a financial publisher.

Jumbo borrowers have always paid slightly higher rates than conforming-loan borrowers, in part because luxury homes can be harder to sell quickly for their full price if a homeowner defaults. But the gap between jumbo and conforming loans, historically around 0.3 percentage point, is now about 1.55 points, with jumbo rates averaging about 6.77%.

Some banks, though, are quoting much-higher jumbo rates. Mortgage brokers say that indicates that lenders are reluctant to make jumbo loans and are setting their prices high to deter new deals. For example, Taylor, Bean & Whitaker Mortgage Corp. in Ocala, Fla., recently listed a 7% rate on a 30-year fixed-rate jumbo loan, but charges up-front origination fees equal to 5% of the loan.

Real-estate professionals say that the lack of financing for high-income consumers is putting extra pressure on affluent communities and causing prices to fall even further. “The million-dollar-and-above market is sinking like a lead weight,” Mr. Lazerson says.

Frustrated Buyers

That is frustrating potential buyers like Brandon Steele, a vice president of marketing for a food-products company, who was approved by his credit union for a $990,000 loan last year to buy a home in the Sherman Oaks section of Los Angeles. He had hoped to move his growing family out of the single-family house he has rented for the past four years and into a larger one. Those plans fell through when his credit union told him in December that they were getting out of jumbo lending.

“We thought we were being prudent by not jumping into the housing market when it was overinflated,” he says. “It’s a catch-22. Now that we want to purchase, we cannot get financing.”

Mr. Steele says that he and his wife have high incomes and a solid credit rating, but that the money he had planned on using to make a larger down payment was lost in the stock market. He says his only option now is to wait for home prices to fall another 20% or to save an additional $100,000.

“Short of moving into a two-bedroom apartment or not funding my 401(k), I can’t save that kind of money in a year,” he says. “If you live in a high-cost area, there’s a whole different standard. Everything’s a jumbo loan.” Mr. Steele says that for now, he’s hoping his credit union, where he’s been a customer for 10 years, will reinstate his pre-approved status and fund the loan.

The lack of financing is particularly acute in markets where rising home prices have made jumbo loans a necessity for even middle-class borrowers, such as New York City, coastal California and Washington, D.C. “If you own a $650,000 home in many parts of this country, you’re not a wealthy person by any stretch, and you’re being cut out of any relief,” says Guy Cecala, publisher of Inside Mortgage Finance.

Around 4% of all borrowers have loans that exceed conforming limits, according to an estimate by First American CoreLogic. But that share rises in high-cost states such as California, at 17%, and New York, at 8%.

Some jumbo clients — enticed by historically low conforming rates — are willing to dip into their retirement savings to lower their balances. Neil Littman, for one, estimates that he’d save $300 a month if he paid $25,000 to bring his loan down to the $417,000 limit in Erie, Colo., a bedroom community about 30 minutes east of Boulder.

“Right now I’m trying to conserve cash, but to get the savings on the interest rate, I’m willing to put more money down,” says the 38-year-old, a commercial real-estate broker.

Mr. Littman, who purchased his four-bedroom home in April 2007, laments the fact that the Boulder area doesn’t have a higher conforming-loan limit. Median home prices in Boulder are nearly $650,000, though median prices for the county are much lower, at around $360,000.

Raiding the 401(k) Account

Other borrowers are raiding their 401(k) accounts in order to qualify for a cheaper mortgage. Jon Eisen, a San Diego mortgage broker, says that one of his clients — a dentist with a $1 million jumbo loan — is considering pulling $450,000 from a retirement savings account to pay down his “interest-only” adjustable rate mortgage, in which principal payments are deferred for a set period. That would allow him to refinance into a fixed-rate conforming loan.

Randy Kobata, who lives in Santa Monica, Calif., says he’s considering taking $70,000 out of his savings to pay down his mortgage in order to get to the conforming limit. He isn’t able to refinance his adjustable-rate jumbo loan from Washington Mutual Inc., now a unit of J.P. Morgan Chase & Co., because the value of his two-bedroom home has declined by $100,000 in the past two years. Meanwhile, the 31-year-old, who works in commercial real estate, has asked the bank for a rate reduction.

Rather than dip into savings to get a better rate, some advisers say, clients are better off holding tight. “If your home has lost 15% in two years, why pay down just to refinance?” says Craig Vogt, a mortgage broker in Brooklyn, N.Y. “It’s like losing money two times.”