Refinancing An Underwater Home Loan–Plans For Helping Homeowners With Negative Equity

Homeowners who are looking for opportunities to refinance their underwater home loan may have various options when it comes to finding the help they need when it comes to addressing issues with negative equity. While there are popular programs like the Home Affordable Refinance Program and recent news has surrounded the FHA short refinance program, many homeowners are finding that addressing issues with negative equity on an underwater home loan can be problematic.

While there are options from the Making Home Affordable Program for homeowners to receive modifications on underwater homes, which can make a monthly mortgage payment more affordable, underwater homeowners have been looking for general affordability in their mortgage, meaning they have sought to reduce the amount of their mortgage principal, which for some, is drastically higher than the market value of their home. Some officials and commentators have called for banks to lower home loan prices to a marketable level, but these principal reductions have not been widely used by many financial institutions and are simply deemed an unwise practice by others.

As an example, the FHA short refinance program offers homeowners the opportunity to refinance their home loan to a more affordable interest rate level through an FHA-backed mortgage and on top of this refinancing opportunity homeowners will be able to have a principle reduction granted by their mortgage servicer. However, many of the nation’s top financial institutions that service mortgages have been hesitant to work with homeowners and the FHA in this program due to the fact that banks must forgive a percentage of a homeowner’s principle when a homeowner is current on their mortgage payments and then turn over this home loan to the FHA.

Obviously, banks are concerned about the heavy losses that may be taken in the housing industry if principles are forgiven and underwater mortgages are lowered to a more affordable current market value, however, homeowners are still angry over their situation where a severe negative equity problem is present. There have been some who argue that housing prices were inflated and, as a result, home prices have dropped to substantially lower levels, but options to find affordable payments on underwater home loans are present.

However, the problem with some homeowners in an underwater mortgage isn’t the fact that opportunities to find an affordable monthly repayment aren’t present, it’s simply that homeowners who view their home as an investment feel that there is little point in continuing homeownership with their current property since they have lost such a great deal in its value. While some homeowners with Fannie Mae and Freddie Mac may be able to take advantage of the Home Affordable Refinance Program, additional financing options for lower interest rates and home loan payments may not be available to homeowners in a negative equity position. Yet, homeowners who are concerned about their ability to continue to meet their monthly mortgage payment on an underwater home loan do, again, still have options through home loan modifications and other assistance plans available from various mortgage servicers.