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5 Ways to Refinance an Underwater Mortgage in Today’s Market


Over the last six years, most of the country has reported negative equity from declining home sales and foreclosures. Most homeowners find themselves stuck with an upside down mortgage because their balance owed is more than the property is worth. Millions of applicants have been turned down for refinancing because they have an “underwater mortgage”, until this new program hits the streets.

Will the Government Shut Off the Aid to Borrowers that Need a No Equity Refinance?

There have been many government loan programs that have attempted to help distressed borrowers with underwater refinancing but very few have succeeded. The FHASecure, Hope for Homeowners, EHLP, HAMP, Fannie Mae Du Refi-Plus and the Home Affordable Refinance Program all provided a program to refinance underwater mortgages, but very few loans were closed when it was all said and done. On paper, these relief plans all looked great, but when the lenders and insurance companies read the fine print of these programs they were turned off. They offered a path to achieve a low fixed interest rate with loan to values ranging from 105 to 125% but lenders never felt comfortable originating the underwater mortgage programs mostly because the risk was too great. These federal programs neglected to solve the risk factors most refinance lenders were simply not willing to take.

Finally the Federal Government, Fannie Mae, Freddie Mac and FHA came together to overcome the obstacles that lenders and insurance companies had and they rolled out several solutions for distressed borrowers to actually achieve an underwater mortgage refinance. With home values going up and down like a row boat drifting out to sea with hurricane swells, it became clear that a 125% cap on loan to value ratios was not enough nationally. In many regions like Arizona, California, Nevada, Florida, Georgia New Jersey, Maryland and Virginia, loan to values greatly exceeded the 125% threshold. We saw reports of upside down mortgages at 200 and 300% loan to value in some hard-hit regions. So the only way to overcome the negative equity dilemma was to completely scrap the ratio between loan balance and property value. The other issue was the “lender risk”, so the Federal Agencies agreed to minimize the risk so that loan companies and banks would participate in the underwater refinance programs. The HARP 2.0 was born with loan to value limits and limited liabilities for HARP lenders.

1. Are you eligible for no equity refinancing from one of the government sponsored entities like Fannie Mae or Freddie Mac? You may have an upside down mortgage, but your lien must be owned or serviced by Fannie Mae(FNMA) or Freddie Mac(FMCC) and have been closed prior to June 1, 2009.

2. Verify with Fannie Mae whether your 1st loan online is owned by them > Fannie Mae Loan Look Up

3. Check to see if Freddie Mac owns your mortgage > See if Freddie Own Your Home Loan

4. Verify if you meet the 80% minimum loan to value criteria under the HARP 2.0 guidelines

5. Are you below the 45% maximum debt to income ratio limit?

According to a KBW Research report, over than 1.6 million homeowner have closed on a HARP refinance loan to date, of which 618,217 refinances took place in 2012. The reality is that the pool of qualified HARP applicants is shrinking significantly. Many consumers bought homes in the U.S. after the “May 31, 2009” cut-off that Fannie and Freddie require for refinancing under the HARP umbrella. That means that there are tens of millions who have an underwater mortgage but do not meet HARP requirements to refinance.

Looking forward at Obama’s second term, many finance analysts believe that the Obama Administration will have more liberty to take their mandate and force the issue of the Federal government’s role in housing and how it relates to the home finance industry. Only time will tell, but to Obama’s second term may lead to HARP 3 and the federal mandate that banks write-down mortgages to current values. Of course these are very controversial topics that you can expect to see fighting on the Hill as the Republican led Congress and the Democratic led Senate make these issues political.


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[…] Bryan Dornan posted an article a few days ago that spells out the the best methods for achieving an underwater mortgage refinance. Tags: Posted in: National Mortgage News | Comments (0) Add To: delicious digg facebook google […]


We applied for an Obama refinance with several lenders but the loan application kept getting held up in process for weeks and in some cases months. The company said the loan to value is disregarded because Fannie Mae holds our note. Finally it looks like we found a mortgage lender under the HARP 2.0. Thanks for your help.

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