Underwater Homeowners Have Options

Homeowners who are underwater on their house can get help. Underwater means that owners owe more on their home than its worth. Currently, 10.8 million Americans remain underwater on their home, according to CoreLogic, a company that provides analyses and statistics for the housing industry. But, they have hope.

Fannie Mae extended its DU Refi Plus Program and Freddie Mac renewed its Freddie Relief program for 2013. Although homeowners might have heard of loan modification programs, these are not that type of help. Loan modification allows homeowners to change their mortgage to reduce their payments while extending the length of their loans. These programs do not extend the length of the loan, but they help homeowners to refinance their loans at the current lower interest rates. Both of these programs fall under the Home Affordability and Stability/Making Home Affordable Plan, which has been successful. Recent upgrades to the program have made it easier to refinance mortgages even those underwater to the historically low interest rates.

Qualified homeowners can refinance a conventional first mortgage, which is backed by Fannie Mae or Freddie Mac no matter how underwater they are. As long as the current Fannie or Freddie loan was acquired prior to May 2009, there should be no loan-to-value limits. Previously, those families who were paying mortgage insurance were not eligible to participate. However, the government has changed that rule. Borrowers with PMI can take part in the program. Homeowners with a second mortgage can participate as long as the second mortgage remains where it is while refinancing the first mortgage.

While some lenders only allow the borrower to refinance up to 105 percent to 115 percent of the property value, my company allows up to 150 percent of the property value. That means if the home’s value has dropped to $300,000 but the mortgage is $445,000, the company still can refinance the home and roll the closing costs into the loan.

My company can offer a Property Inspection Waiver to the borrower on Fannie Mae-backed loans. The company's direct underwriting system acknowledges the property value so the homeowner does not need to pay for the appraisal. I am refinancing many homeowners that are underwater using these programs.

The question for homeowners is whether their mortgage is backed by Fannie Mae or Freddie Mac so they might participate. More than 95 percent of all mortgages are backed by Fannie Mae or Freddie Mac Securities, which means that most homeowners who are underwater would probably be able to participate. It does not matter that the loan was processed through a major financial institution, such as Well Fargo, the security backing is provided by Fannie Mae or Freddie Mac. Also, if homeowners determine their loan is not backed by either institution, that might change if the homeowners check back after a certain amount of time. One of my clients was ineligible for the program in the beginning, but after a few months, the client found out she was eligible.

Homeowners can visit http://www.makinghomeaffordable.gov/programs/lower-rates/Pages/harp.aspx for more information on the programs.