Underwater Refinancing With Making Home Affordable And The FHA–Options For Homeowners And Problems They May Face

Underwater refinancing opportunities from the Making Home Affordable Program and initiatives from the FHA are currently some of the few options that underwater homeowners may have when it comes to finding solutions to particular problems that these individuals may face and, for those seeking assistance through either refinancing opportunities or mortgage principal reductions, there are limited options outside of these plans that homeowners may be able to use. However, there have been some mortgage servicers who were hesitant to offer these plans or participate in programs that would reduce a homeowner’s mortgage principal or allow for underwater home loan refinancing.

Yet, the federal Home Affordable Refinance Program and the FHA’s short refinance plan are still being seen as potential methods that could address negative equity issues, despite opposition to these plans and lackluster performance in certain areas when it concerns participation on the part of major servicers. While there have been banks that recently signed on to the FHA’s short refinance program and, since this program only began in September 2010, there are some who feel that in the coming months it could be more easily implemented to help homeowners, as some financial institutions stated they were simply not in a position to take advantage of the program in recent months, yet negative equity remains an issue that must be addressed and, for many homeowners, refinancing or principal reductions are the only options.

According to an article on SmartMoney.com more financial institutions are becoming aware of this negative equity problem as, “About a year ago, it seemed the number of underwater homeowners was declining as home prices were rising. But housing analysts say that trend is now reversing. Approximately 23% of homeowners with a mortgage are underwater — near an all-time high — according to fourth quarter 2010 data.” Obviously, many homeowners have grown so frustrated with the negative equity they have seen on their home that they have simply walked away, but there are some financial institutions and officials in the housing market that state the severity of negative equity in some cases have called for severe reductions in a mortgage principle, which raises a host of issues from affordability on the part of servicers and investors to ethical concerns related to some homeowners being forgiven a percentage of their principle while others remain underwater.

Yet, as the HARP initiative continues, it’s hoped that servicers will begin using programs like the FHA’s short refinance plan that could bring principal reductions and the opportunity to refinance for more affordability. While homeowners who are able to document financial distress related to job loss, a reduction in their salary or wages, or excessive medical expenses may be able to either get a lower interest rate on their home loan or have a mortgage term extended so that more affordable monthly payments are offered. Yet, this has still not been available to all homeowners in a negative equity situation and even in cases where some homeowners were offered these opportunities for lower payments, the severity of their negative equity has still prompted them to walk away rather than continue to pay on a home that is worth less than the mortgage.

Some of these underwater mortgage refinancing options have not been helpful or available to all homeowners, but in cases where homeowners can lower their monthly payment or are simply able to afford their mortgage payment despite being a negative equity position, some officials hope that these homeowners will avoid strategically defaulting as they may be able to simply wait out the current housing market situation, will see correction in the coming years and hopefully the return of their home’s value. However, without these refinancing and principal reduction programs, some homeowners feel they will never recoup the losses that have experienced through the devaluation of their property and, as a result, feel that when underwater issues are not properly addressed, walking away may be their only option, despite these efforts to make home loan payments for underwater homeowners more affordable.