Mortgage Refinancing When You’re Underwater
Due to the economic slump, most homeowners find their home worth less than their mortgage balance. In a recent US News and World Report, it said that almost 11M homeowners are currently having this problem. Often, we find news reports about how home values are dropping due to the foreclosure crisis. However, failing to qualify for mortgage refinancing is also another problem which affects a lot of American homeowners although they have good credit scores and pay their monthly amortizations on time. Even with the lower interest rates, these homeowners simply can’t take advantage of it because of their underwater status. As a matter of fact, homeowners who have mortgage balances at least 80% of the present value of their home will probably experience hardships in applying for mortgage refinancing with another lending institution.
The Home Affordable Refinance Program of the US Departments of Housing and Urban Development, and Treasury is introduced in order to find a solution to this mortgage refinancing problem. This aims to help those American homeowners who are in underwater status or who currently have low equity on their homes so that they can refinance their homes with the prevailing low interest rates. Short term refinancing is also possible with HARP (Home Affordable Refinance Program).
To be eligible to the Home Affordable Refinance Program, the mortgage must be guaranteed or owned by Fannie Mae or Freddie Mac. Prior or the date of May 31, 2009, the mortgage had been sold to either Freddie Mac or Fannie Mae. It mustn’t have been previously financed under the Home Affordable Refinance Program unless the Fannie Mae loan was HARP-refinanced from March to May 2009. The ratio of the current loan to the home’s value must be at least 80% and at the time of the mortgage refinance, the homeowner is not in default. The payment history of the homeowner must also be good for the last 12 months. The last day of HARP processing is on December 13, 2013.
To apply to the Home Affordable Refinance Program, the homeowner must check if the mortgage is currently guaranteed or owned by Freddie Mac or Fannie Mae. Once this is ascertained, the homeowner must communicate with his mortgage servicer regarding HARP. If the mortgage servicer doesn’t participate in the Home Affordable Refinance Program, the homeowner can search for other mortgage servicers. Like any mortgage refinancing, it is best to compare fees and rates before signing on the dotted line.
There is a pending legislation in Congress which aims to increase participation to the HARP. It plants to eliminate the Freddie Mac or Fannie Mae requirement for eligibility. If this bill becomes a law, HARP will be made available to at least 13 million more American homeowners. Just recently, the US government had settled with 5 huge banks which were accused of abusing mortgages. The $3.5 billion part of the $26 billion settlement will be used to refinance underwater mortgages which aren’t guaranteed or owned by either Freddie Mac or Fannie Mae. If the mortgage is serviced by All/GMAC, Citibank, JP Morgan Chase, Bank of America, and Wells Fargo and it’s not Fannie Mae or Freddie Mac guaranteed or owned then the mortgage can qualify for refinancing under the $3.5 billion settlement stipulation.