What do I do if my mortgage is underwater?

The last few years we have seen historically low interest rates. The Federal Reserve has worked hard to keep rates low in an effort to stimulate the economy as we continue to recover from the great recession.

This has been great news for many home buyers as they have been able to get interest rates on mortgages that would have been unheard of just a few years ago. By the same token, many have taken advantage of this to refinance their mortgage and save thousands of dollars in interest or to affordably shorten the term of their mortgage.

In the last few months we have seen interest rates begin to creep back up a bit. We probably have seen the absolutely bottom in interest rates, but even though they have risen a little, interest rates are still exceptionally low. If you have not yet refinanced your home and you have an interest rate well to the north of 5-6% or more, you really should be considering refinancing soon. If you are planning to stay in your existing home for the foreseeable future, you might be able to save thousands of dollars in interest.

But what if my mortgage is underwater?

You say, “Bob, that sounds great and I’d love to do it, but I owe more than my home is worth. I don’t have the ability to refinance.” Unfortunately, this is where many have found themselves over the last few years as we have seen real estate prices fall. This is especially tough for those who purchased a home in 2006 or 2007 right at the height of the housing bubble. Many of those folks now find themselves in homes that are worth tens of thousands of dollars or more less than their mortgage.

While we have seen home prices begin to recover in many areas, many still find themselves underwater on their mortgage. As a result many find themselves unable to refinance and take advantage of these historically low rates. It’s a nasty double whammy. They owe way more than the home is worth, but it is difficult to make progress paying it down as their interest rate is too high.

The Home Affordable Refinance Program

If you find yourself in this situation there is a government program that may be able to help. The Home Affordable Refinance Program (or HARP 2 as it is known for short) is designed to help homeowners who are current on their mortgage but are stuck in homes that are no longer worth what they owe.

What are the requirements

There are several basic requirements to qualify for a HARP 2 mortgage refinance.

  • You must be current on your mortgage with a good payment history for the last 12 months.
  • Your mortgage must be owned by Freddie Mac or Fannie Mae and must have been acquired by them prior to May 31, 2009.
  • You must owe more than 80% of your home’s value.
  • The loan cannot have previously been refinanced under HARP.

If you meet these criteria you may be able to refinance your mortgage through HARP 2 to take advantage of these lower interest rates.

How do I know who owns my mortgage?

If you are unsure if your mortgage is owned by Freddie Mac or Fannie Mae, the HARP web site provides a tool you can use to look up your mortgage.

http://www.makinghomeaffordable.gov/tools/does-fannie-or-freddie-own-your-loan/Pages/default.aspx

Or as an alternative you can call 1-800-7FANNIE or 1-800-FREDDIE. Or finally your mortgage lender should be able to tell you if you have a Freddie Mac or Fannie Mae owned mortgage.

What if I’m not current current on my mortgage?

There is a similar program called HAMP (Home Affordable Modification Program) that may be able to help you refinance to get lower payments that you can afford.

Will I be able to reduce the amount I owe?

Unfortunately no. This program is not designed to reduce the amount of your mortgage. It is only designed to help you get refinanced into a loan with better terms if your mortgage is underwater and you do not qualify for traditional refinancing.

Where can I get more information?

MakingHomeAffordable.gov is the official web site for this program. You can find a great deal of additional information there about this and other related programs.

If you want to speak with someone directly the Department of Housing and Urban Development has a network of HUD approved counselors. You should be able to find someone nearby who you can meet with to determine if this or any of their other programs would be helpful to your situation. Additionally, you can also call 888-995-HOPE (4673), 24 hours a day,  to immediately speak to an expert adviser in over 160 languages.

Lastly, you can speak to your current mortgage provider to determine if this program would be appropriate for you.

Beware of scams

Lastly, I’ll say beware of scams. Anytime there are people who are struggling in an area, there will be unscrupulous scammers just waiting to take advantage of the situation.

  • Never pay someone to determine if you qualify for the HARP 2 program.
  • Never make your mortgage payments to someone other than the holder of your mortgage.
  • Never sign over your deed to someone that promises they can save your home from foreclosure.

There are plenty of legitimate resources like those listed above who can assist you with the process at no cost.

There is hope if your mortgage is underwater

If your mortgage is underwater and you don’t qualify for refinancing, there may still be hope. The HARP 2 program was designed specifically to help mortgage holders who are current yet find themselves in mortgages with poor terms to be able to refinance and take advantage of the better rates. While it is hard making the payments on a home that is underwater, at least by refinancing to a lower rate you will be able to more quickly get that mortgage paid down to a level that matches your home’s value and ultimately to get that home paid for!

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