What does it mean to be “underwater” or “upside down”? When a property is underwater, it means that the homeowner owes more than the property is worth. People who bought their homes in 2006, the peak of the housing bubble when prices were highest, are now left with property that is impossible to sell.
Now the government is redressing its Home Affordable Refinance Program to help out homeowners who have not been delinquent in payments but are upside down and dealing with negative amortization. Lenders can now offer new mortgages to borrowers if the property value is up to 25 percent greater than the mortgage amount. It used to be that lenders could only refinance loans for borrowers whose mortgage was no more than 5 percent greater than the home’s value. However, considering the significant drop in real estate prices, 5 percent wasn’t going to cut it for many homeowners.
You may be wondering, “Don’t we have bigger issues to deal with? Like homeowners who’ve already MISSED payments?” And yes, the government has been trying to mend this issue with various initiatives which have helped to varying degrees, and many loan modification agencies – ones that breed integrity and customer value – are serving consumers for this purpose. But we want to not only remedy the present but also stem future waves of foreclosures.
Many borrowers who AREN’T late on payments are still stuck with mortgages characterized by high interest rates or the potential to adjust beyond the homeowner’s means in coming years. To make matters worse, lenders and mortgage insurers have tightened underwriting rules, typically requiring borrowers to have at least 15 percent equity in a home.
There is some fine print in this new refinancing program. Borrowers must hold a loan that was purchased by Freddie Mac or Fannie Mae, the government-controlled companies that buy most mortgages. To determine whether you have a Fannie or Freddie loan, go to the “loan lookup” tab at www.MakingHomeAffordable.gov.
If you qualify, your interest rate will very likely be slightly higher than the market’s best loan rates, especially if you refinance with someone other than your current servicer. And if you are 5 to 25 percent underwater with a Fannie Mae loan, you must refinance with your current servicer to qualify.
No matter what your current mortgage situation, there is help available. You just need to know where to look and who to consult. Even if it may not seem like your situation is particularly pressing, there are steps that can be taken now to alleviate potential problems in the future.
