Underwater refinancing opportunities for delinquent homeowners have led to programs which may provide affordable options for those who are in need of assistance when negative equity is a problem and they fear foreclosure may be close at hand. Yet, predictions over the continued loss of value in some areas across the nation, which would obviously lead to even more underwater situations or cases where negative equity becomes more severe, has many concerned over the lack of accessibility that some homeowners may have to underwater refinancing or principal reduction opportunities.
There are some financial institutions which allow homeowners who are in an underwater situation, and continue to meet their monthly mortgage payment, to participate in an earned principal forgiveness program which, over time, will allow for a homeowner to see their mortgage principal drop closer to the market value of their home. Also, the home loan modification program will allow for a principal reduction of up to $1000 per year over five years to be granted to a homeowner who continues to make these modification payments on time.
Efforts by Fannie Mae and Freddie Mac have also provided refinancing options for some homeowners as well as it has recently been reported by the Federal Housing Finance Agency that the cumulative number of homeowners participating in the Home Affordable Refinance Program for the third quarter of 2010 numbered at 479,894. Obviously, the need for more affordability through underwater refinancing has been a key to preventing foreclosure in situations where negative equity has resulted in a homeowner being unable to meet their monthly mortgage payment, but there are questions as to how homeowners who are not delinquent on their home loan or who may not qualify for HARP will find the lower mortgage payment they need on their underwater home loan.
Proposals for programs like the FHA short refinance program were short-lived as it did potentially offer underwater homeowners who were current on their mortgage the opportunity to not only refinance for a more affordable rate but also receive a principal reduction, however the losses that would have been taken on the part of servicers have stopped this program from seeing success. Essentially, mortgage servicers would write down a percentage of a homeowner’s principle, when they were current on their underwater mortgage payments, and then hand the loan off to the FHA which could be refinanced for a more affordable rate.
While homeowners who were current on the underwater mortgage stood to greatly benefit, this, again, was felt to be potentially detrimental to many mortgage servicers as they were giving away underwater home loans in cases where a homeowner was able to meet their mortgage payment. Yet, there are still those who feel underwater mortgages and negative equity will be a concern throughout the new year as, again, there are predictions that some areas will not see property values return to their original levels for quite some time.
Yet, traditional modifications may be used by underwater homeowners to find affordability and the Home Affordable Refinance Program may also be an option for homeowners in underwater situation whose home is either owned or guaranteed by Fannie Mae or Freddie Mac. However, there have also been some predictions that homeowners who may be unable to continue to afford their mortgage payment could be offered more opportunities for short sales or deed in lieu of foreclosure plans as the cost of foreclosure to servicers may increase in the new year and lead to more use of these alternative programs.