Underwater Mortgage Trouble For Homeowners–Are Refinancing And Assistance Programs Providing Help?

Homeowners who have negative equity and are struggling to meet payments on an underwater mortgage are seeking out refinancing and alternative assistance programs which may provide help for their underwater situation. Refinancing programs, like those from the Making Home Affordable Program and the FHA have been popular and reported on over the past months as a way for homeowners struggling with an underwater situation to deal with their predicament.

Yet, there have also been opportunities for homeowners to participate in a short sale or a deed in lieu of foreclosure program as a way to escape a negative equity situation where a homeowner owes a substantial amount more on their home than it is worth. However, questions have also arisen as to whether these programs are providing the assistance that homeowners need when dealing with and addressing issues related to underwater mortgages.

Many financial institutions offer modifications to homeowners with an underwater mortgage as a way to find affordability in their monthly payment obligation. While traditional home loan modifications may come with a principal reduction for those who make timely payments, the amount of principal forgiven over a five-year period may only be a small dent in the amount of equity that a homeowner has lost thanks to depreciation.

Yet, homeowners are still frustrated with the amount of value they have lost in some cases and have attempted to acquire principal reductions, but many financial institutions have been hesitant to offer these forgiveness options. This has been evidenced by the FHA’s short refinance program, which offers homeowners the opportunity to refinance into an FHA-backed mortgage as long as their servicer will forgive a certain amount of their mortgage principal, but homeowners must be current on their home loan to qualify.

Obviously, homeowners who may be current on their mortgage despite being in an underwater situation are not usually the individuals that financial institutions wish to grant principal forgiveness to as this is seen by banks to be taking unnecessary loss on their part. Yet, in cases where homeowners are having trouble meeting monthly mortgage payments, a simple principal reduction may not meet their needs and, as a result, alternative affordability options are usually sought.

It is true, though, that there are some homeowners who have opportunities through the Home Affordable Refinance Program and other federal initiatives to address issues related to underwater mortgages, but when it comes to refinancing plans or principal forgiveness, these opportunities may be limited to many. While, there are homeowners who can qualify for more affordable monthly mortgage payments, the issue of homeowners being in a home where they owe more than the home is worth is one which has not been widely addressed as numerous homes continue to house homeowners who are combating a situation where negative equity is still present.