Underwater refinancing programs have been made available to certain homeowners who owe more on their home than their home is worth. Understandably, underwater mortgages are a very difficult predicament for certain homeowners as the loss in home value can cause various financial difficulties.
Yet, underwater mortgage refinancing plans may help certain homeowners who are suffering from an underwater mortgage and may face defaulting on their home loan. The FHA has introduced a short refinance program which may allow homeowners to not only refinance their home loan but also receive a principal reduction as well. Understandably, there are critics who feel this program may be unsuccessful since mortgage servicers must reduce a homeowner’s principle, but there is hope that in cases where underwater mortgages and defaulting may go hand-in-hand, servicers will work with homeowners through this program.
There also may be assistance for homeowners through the Home Affordable Refinance Program, which is an extension of the Making Home Affordable Program. Homeowners who have a home loan that is owned or guaranteed by Fannie Mae or Freddie Mac may be able to use this underwater refinancing opportunity to get a more affordable mortgage payment on their home loan.
While there have been some financial institutions to offer our principal forgiveness plans, many banks have been hesitant to offer principal reductions are large-scale. While there are reports that some banks may work with homeowners who are in a situation where defaulting may be imminent, there is concern that these underwater refinancing programs may provide little help since some mortgage servicers are the required to, again, provide principal reductions or allow homeowners to refinance when they have negative equity.