Homeowners with an underwater mortgage are typically in one of two categories, being those who either want to find a more affordable monthly payment on their underwater mortgage or individuals who simply want to be free and clear of their underwater home loan obligation. Some homeowners have suffered financial setbacks and are unable to meet their monthly mortgage payment when an underwater mortgage is present, but other homeowners who are current on their underwater home loan are still frustrated nonetheless.
For this reason, refinancing opportunities have been presented to homeowners in an underwater situation in the hopes of offering lower monthly payments and an overall affordability which can be sustained by homeowners who owe more on their home than their home is worth. Months ago the Making Home Affordable Program established the Home Affordable Refinance Program, which has allowed homeowners who had an underwater mortgage that was owned or guaranteed by Fannie Mae or Freddie Mac the possibility of refinancing to a more affordable rate.
However, homeowners who are current on their mortgage payment despite being in an underwater situation have been offered assistance through the Short Refinance program from the FHA. This option allowed homeowners to refinance their home loan to an FHA home loan, typically at a more affordable interest rate, and have a portion of their principle reduced by their mortgage servicer.
Yet, despite incentives for servicers to offer principal reductions, many have been reluctant to do so and, as a result, have caused difficulties to arise when homeowners were attempting to refinance through the FHA’s underwater refinancing plan. Also, some homeowners have simply asked for a principal reduction since some have felt that their home’s price was inflated when it was initially purchased, and as a result, they are severely underwater at the present time.
Obviously, traditional refinancing is unavailable for homeowners in an underwater mortgage, for the majority of cases, but these underwater refinancing plans from the FHA and the Making Home Affordable Program are still in place and may be beneficial to homeowners who are in a negative equity situation. Yet, some homeowners have turned to short sell opportunities, if they qualify, as a way to rid themselves of a situation where their negative equity is causing a financial burden and may lead to missed payments or potential defaulting in the future.