Underwater Mortgage Refinancing Plans To Avoid Foreclosure–Are More Homeowner Options Needed?

Homeowners have been seeking underwater refinancing options for their mortgage as a way to avoid foreclosure, but there are difficulties related to this issue as many homeowners have been unable to find affordability in their underwater mortgage and, as a result, have either lost their home, walked away, or attempted to short sell their home. There are still concerns over underwater mortgages and the housing market in general as there are some analysts who feel home prices may continue to drop in 2011.

Last year, the Home Affordable Refinance Program did offer an opportunity for some homeowners to find affordability in their mortgage payment through refinancing options from Fannie Mae and Freddie Mac, and there was some hope on the part homeowners when the FHA Short Refinance Program was implemented, yet there have been lackluster results in certain areas.

While homeowners may be able to refinance through the federal underwater mortgage assistance plan, there are still issues like principal reductions and affordability about which many homeowners were still concerned. Obviously, some homeowners are unable to afford their underwater home loan and may not have refinancing options through HARP, which means they may be left without opportunities to find affordability on their home loan. While modifications may be available, there are still difficulties in proprietary and federal modification programs which have caused additional problems for homeowners in a negative equity situation.

Also, homeowners who have attempted to obtain principal reductions have been met with resistance by some banks who feel that this form of underwater assistance does not help with affordability, but is something many homeowners were simply seeking because they view their home as an investment and want the option of selling for profit down the road. There have been some banks who have offered earned principal forgiveness programs, which are available to homeowners who continue to make their home loan payments despite being in a negative equity situation, but plans like the FHA Short Refinance Program were hoped to offer homeowners principal reductions and refinancing options, but this has been largely unsuccessful due to hesitation on the part of mortgage servicers to take a loss on a home where the homeowner is current on their mortgage payments.

While homeowners who are facing negative equity do hope that more solutions may be offered for underwater homeowners, there are still some options from state-specific plans and federal home loan assistance initiatives which can help homeowners find affordability, despite having negative equity in their home. Obviously, banks have different methods for dealing with homeowners who are in an underwater mortgage and simply want a more affordable payment so they can keep their home and homeowners who are willing to just walk away from their mortgage obligation, but the former group may have more options in terms of meeting their objective. In the past, homeowners who want to strategically default have been difficult to handle as they feel there are little incentives when it comes to finding affordability in their mortgage payment or putting in the work that is required for options like a short sale.