There are ways to refinance upside down mortgage loans despite popular belief. In the current economic environment banks are refinancing under water mortgage loans, making principal write downs, extending loan terms, and adjusting interest rates on at risk loans just to keep loans current and performing.
The federal government has been working very hard since 2008 to keep people in their homes and to keep the mortgage market performing as best as it can and as a result there are many options available to home owners. For homeowners who are not severely underwater or for those owners who do not have significantly upsidedown mortgages these mortgage refinance options may be the best way to go or at last try.
For those homeowners however who have significant negative equity and who are struggling to stay current on their housing payments the refinance of an upside down mortgage loan can make a big difference to whether a borrower will remain current on their obligations or simply walk away. The landscape is a little tricky for upside down loan holders and no two home owners will probably experience the same process or results but options do exist.
A Lender / Servicer Negative Equity Refinance
Many people fall into the category of holding a mortgage in which the lender retains ownership of that obligation or note. Often times a homeowner simply won't know if they fall into this category because lenders do not divulge this information in standard practice. In the boom years many mortgage companies were not portfolio lenders â€“ this means they originated the loan using a warehouse line of credit or acting as a correspondent to a larger lender and servicer. Once the mortgage was created and began performing the loan was often packaged into securities and sold off to investors.
We all know how some of these mortgage backed securities performed and how some of them were arguably the fuel for the resulting recession but these mortgages, as they relate to you, mean that if your mortgage was packaged and sold that your servicer or lender may not be able to simply negotiate new loan terms with you due to their obligation to their investors. In layman's terms this means that getting an under water home loan refinance from your lender may be difficult if you are in this position. You won't know if you are in this position however without digging and finding out. You can always try asking your lender â€“ they may offer this information freely.
If you do find out that your lender has retained your loan in their portfolio then that means they have the power to renegotiate your loan as they see fit. In a regular home loan refinance deal you would have to reapply for a new home loan. If you qualified for a new loan your old loan would be paid off by the new loan but in an upside down mortgage negotiation lending guidelines will typically not allow for this to happen as a new loan can't be created for a value more than what the house is worth. In this situation the refinancing deal will not really be a refinance but a mortgage modification which would not replace your current mortgage but modify it to make it easier for the borrower to stay current on the payments.
In normal economic times mortgage modifications were no the norm however in an environment when lenders are facing unprecedented foreclosures and mortgage asset losses modifications can make sense to a lender if they lower the risk of losses on average. You as the borrower simply have to press your lender for the modification showing them that your under water home loan is a struggle for you to continue paying and that your negative equity position makes default a significant possibility. If you can convince them that an interest rate reduction or principal write down on your loan can keep you current they may give you a negative equity mortgage refinance or mortgage modification. You can't count on this happening but it's worth a shot if you play your cards right and meet their modification guidelines.
The FHA Insured Refinance Mortgage Program
If however your loan is not able to be modified by your lender for one reason or another there are government programs which may be able to help. One such program which was created in the fall of 2010 is the FHA insured refinance mortgage program which aims to get non-FHA insured real estate loans refinanced into new more affordable loan programs.
In this program an under water or upside down mortgage which is not FHA insured is required to qualify. Also the home owner must be current on their loan and have a FICO over 500. There are many additional qualifications that must be met to qualify for a negative equity government refinance loan most notably the holder of the first mortgage must be willing to write off 10 percent of the principal balance for the refinance deal to close. Additionally any second mortgage may not bring the new loan total above 115 percent of the homes current value.
Over all this type of under water FHA mortgage refinance is meant to capture a different group of homeowners than other programs, loans which are not government insured and real estate which is backed by multiple investors. When multiple investors are involved private mortgage mods are more difficult to secure but with government assistance they may be viable. For more information on this new program you may want to review the official HUD guidelines.
There are of course a number of additional negative equity refinancing options presented by various other programs but often times you won't know if you quality until you start asking questions. And as much as many people don't think about it banks and mortgage lenders are looking for ways to limit their potential for losses. Foreclosure on an under water, negative equity house can be costly, by taking a small hit on principal reduction or mortgage modification many lenders can reduce the risk of this happening. And for that reason pursuing some of the more proactive mortgage refinance options may appropriate.