2 refinancing options if you’re underwater
Government-backed programs can help with refinancing for homeowners who don’t have equity in their property.
Homeowners whose mortgage balance exceeds the current property value know the futility of trying to refinance. Refinancing options for so-called "underwater" mortgages are limited because most lenders require some equity in the property — ideally about 20 percent.
However, borrowers should not give up hope. Options do exist, especially via the government's Making Home Affordable program.
First option: HARP
If you meet certain criteria, your underwater loan may be eligible for a refinance through the federal Home Affordable Refinance Program, or HARP. The program allows qualified borrowers to refinance a loan that is from 105% to as high as 125% of a home's value.
However, not every underwater loan qualifies for HARP. First, you must not be on the road to foreclosure: Any delinquent payments in the past 12 months will automatically disqualify you from eligibility.
Second, either Fannie Mae or Freddie Mac must own the loan. You can find a loan lookup tool and other calculators at the government's Making Home Affordable Web site.
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Your ability to take advantage of HARP will depend on payment history and other factors including credit score, the structure of the current home financing and specific lender guidelines.
"Can it help everyone? No," says Jason Bonarrigo, senior mortgage banker with Wells Fargo Home Mortgage of Boston. However, Bonarrigo has closed several HARP loans and says it's worth investigating eligibility.
"If refinancing through HARP can shave $300 or $400 off a monthly mortgage payment, it can sometimes make a difference between keeping and losing a home down the road," he says.
Second option: HAMP
If you not only have an underwater mortgage but also have missed payments, you may qualify for HAMP, the federal Home Affordable Modification Program, available through mortgage lenders.
To qualify, you must demonstrate financial hardship that puts your mortgage in imminent danger of default. The mortgage must be owned by Fannie Mae or Freddie Mac or by others signed up with the U.S. Treasury to qualify for HAMP. (Call your loan servicer to find out if it is participating.)
While the program provides government incentives of up to $1,500 to lenders to process these modifications, the ultimate approval rests with the lender.
"HAMP is not a refinancing program, it's a change to the contract terms ... but it can lower your payments for up to 60 months," says Michael Goldstein, a bankruptcy attorney and partner at Goldstein and Clegg in Lynnfield, Mass.
Bing: Search & decide
Beginning in the sixth year, a borrower's mortgage rate may begin to increase, but no more than 1 percentage point a year until it reaches "the market rate at the time the modification agreement is prepared," according to the Making Home Affordable Web site.
Lenders offer several different types of modifications, says John Walsh, president and founder of Total Mortgage Services in Milford, Conn.
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"(The mortgage company) could amortize your current mortgage to a longer term, a lower interest rate or forgive some of the principal balance of your loan," he says.
While a modification may be a good option for some, there are strict qualification guidelines, Walsh says. For example, the home must be a primary residence, the mortgage must be less than $729,750, the current monthly payment must be more than 31 percent of your current gross income, and you must be able to demonstrate you are having difficulty making the payments.
The loan modification also has a trial period of 90 days, after which the lender reassesses the borrower's situation to see if he or she qualifies for the long-term modification.
Third option: Reality check
Underwater borrowers who don't qualify for HARP or HAMP may find themselves out of luck.
"Unfortunately, there are no other government-backed refinancing options," Bonarrigo says. But that doesn't mean you shouldn't try to negotiate a loan modification with your mortgage lender. As an alternative to foreclosure, many lenders are willing to offer some kind of loan restructuring, even without a government-backed program.
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"Whatever you do, don't bury your head in the sand," Bonarrigo says. "Don't wait for (a) foreclosure notice."
If restructuring the loan is not an option, ask about the possibility of a short sale, which means selling your house at market value, with the remaining loan balance forgiven by the lender.
"A short sale is preferable to foreclosure, less of a negative impact on your life," Bonarrigo says. "And given today's climate, banks are open to it."
I finally was able to get my 1st loan Hamp'd and my second loan 2mp'd through BofA. It was a harrowing ordeal dealing with BofA. They truly do try to take you through the ringer and find ways for you not to qualify or delay the process with hopes that you do begin to miss payments and fall behind because if they do modify your loan, they will capitalize (add back to the principal) all of the missed payments and interest you had in the time you were trying to get modified. At that point, they are then earning interest off of the interest and receiving government incentives on top of that.
I'm in banking already so I was two steps ahead of them, so when they were trying to feed me bad information, I challenged them and let them know that I knew better than that and better than them. I even filed a complaint with the Consumer Financial Protection Bureau (CFPB) and let them know about the shady practices I personally endured and observed. They were forced to respond to the CFPB as well as me with a resolution. Glad to say that after 10 months of back and forth, my 1st loan was modified to 2% and two months later my second loan was modified to 1%. My combined monthly payment went from $4,287 down to $2,015. It's a 2 family with rental income so I'm making a pretty penny now thanks to the Good Lord above, my perseverance and Obama's Hamp Program!
The program is able help 99.9% of the people who are underwater and can put the equity back into their property. Nothing like the government programs. Which they have you jump through a bunch of hoops only to tell you, you dont qualify.
Check it out. you got nothing to lose. It might be able to help you and others.
First I want to state that the information I've been reading is old in terms of people identifying the percentages the banks are suppose to refinance through HARP. If you go to the website MAKING HOMES AFFORDABLE.GOV you will see that even another new program is suppose to be available
for refinancing through HARP. It is called HARP 2.0 AND IT STATES THAT ANYONE THAT HAS AN
LTV OF 80 PER CENT OR GREATER ARE SUPPOSED TO BE GRANTED REFINANCING THROUGH HARP IF YOU MEET THE QUALIFICATIONS. This program is good through 2013 Dec. 31.
Unfortunately the banks and the government seem to create these programs just to look good. I
meet all of the qualifications and have never had a late pay as stated in the qualifications.
I spent 6 hours on the phone between Freddie Mac, Bank of America and the Homes affordable
hot line 888-995-HOPE. I talked to six different Bank of America Mortgage Representatives
and received 6 different stories from Your loan is a Community Program Loan, to your percentage are not there, to we have until March to implement the new program, call Freddie
Mac and ask them why to the FINAL COMMENT- If I were you I would just forget about it.
This occurred between 9AM and 3PM do to all of the calls and hold time and being transferred
from one person to another.
I'm coming to the conclusion that these programs are implemented for Public Relations
and there is no real sincere intent there to help us. As far as the modification programs
I've come to the conclusions that they are there to assist the Law offices in making money
and ripping off your average uninformed home owner who really needs help.
Now maybe you know why that it is stated that hardly anyone utilizes these available
services in terms of percentages of people.
That is far from the truth! They weren't intended to be successful as too many people
might really not go into foreclosure and end up paying their home off. They are designed
to make the administration look as if they are trying to help us when they really don't care
or these problems and issues wouldn't be occurring.
I voted for Obama and I don't know who I'm going to vote for now. I just might not vote.
What do you think!
Roll forward 6 months and I've now researched to find out IF I could qualify for a govt backed loan modification. Well, apparently, my financial situation would have qualified me but the fact that my loan date is now later than the cut off date I am automatically ineligible! Yes, my proactive move to lower my expenses has, in fact, cost me my chance to save my home!!!
Why don't the government offer gap insurance to homeowners who, with their 1st mortgage and LOC are too far under water to be helped by these programs. It doesn't cost the gov't any money. This program would be for working, good credit people who are trying to refi at the current low rate. Chances are, these people will remain working and will pay. Now you have a much lower rate and payment, and several hundred dollars extra in your pocket each month to help spur the economy. If the unfortunate happens, the gov't steps in and pays the bank the "gap" difference between what is owed and the value. Since this is gap type insurance, there is no upfront cost to the gov't at all. Besides, these are people, who are already paying, not a risk. Not one bank is calling the homeowner who's over a $100 thousand underwater demanding them to bring cash to the table to buy down their loan, because they're now, a risk, as long as they keep making those juicy payments. Let us refi, gov't insures the gap, mortgage business explodes, economy takes off like a rocket.....
I would like challenge the author, Marcia Passos, to research the HAMP and HARP programs. Not just gloss over it for a web article. I bet she will find a tremendous amount of fraud and deception by the government and the lenders. It is not as simple as a few words on the internet. Anyone that has applied or were forced to apply to these programs will more than likely find a rejection notice by these programs. In the mean time the government gives the lender money for the fact of just applying to the program, knowing fair well they will be rejected. According to the senior banker, Mr. Bonarrigo has closed several HARP loans and says it's worth investigating eligibility. How many have they rejected? And what does the lender get for just applying regardless if they will be rejected or not. If you were in the middle of a modification or short sale as i am, this program will delay your application process with the lender. It is incredible the amount of money that the lender gets for just applying and getting the rejection notice. I think it is about $6,000. Now multiply that by the amount of applications! It is millions that the lender gets just for applying and rejecting. I would challenge Marcia Passos to look into this fraud of a program(s) and i bet she will be rewarded by a Pulitzer for her investingation.
THE HOME AFFORDABILITY PROGRAM IS A CROCK!!!
They may actually help 1 out of 10000 struggling home owners.
TCF Bank is NOT open to a short sale. Our house has been on the market since February and only one buyer has looked at it. They thought the price was too high, but we have it listed at only $5000 more than what we owe. We called our bank to see if we could do a short sale, but they wouldn't answer any of our questions unless we signed a statement promising to pay the balance of the loan. They had absolutely no compassion and their attitude toward us and our real estate agent (and relators in general) was extremely negative and unprofessional.
We are in no danger of being forclosed on, and we have good credit and good jobs, so we don't qualify for these programs. We need to move because we can't afford a two-hour commute (one way) much longer.