A lot of homeowners with underwater mortgages would like to
refinance, but they don't qualify for HARP (the federal Home
Affordable Refinance Program). Do they have other
Surprisingly, yes. There are other ways you can refinance a
negative-equity mortgage if you don't qualify for HARP.
Unfortunately, they're limited to borrowers who are in specific
situations. However, more options may be on the way.
Easy refinance for FHA, VA loans
It's actually quite easy to refinance if you're underwater on
your mortgage if the loan is backed by the FHA or VA. Both of these
offer what are known as "streamlined" refinancing on mortgages that
enable you to be approved for a refinance almost automatically,
provided that you've kept up with your mortgage payments.
With these types of mortgages, it doesn't matter how far
"underwater" you are on your mortgage - that is, no matter how much
the value of your home has fallen below what you owe on the loan -
approval is practically guaranteed if you've been making regular
payments. Credit scores, appraisals, proof of employment - none of
these are necessary.
The primary criteria for a VA or FHA streamline refinance are
that you be current on your payments and not have missed a mortgage
payment in the past 12 months - six months on an FHA loan with no
more than one late payment in the past 12.
There are certain limitations - for example, if you have a
second mortgage, those must be subordinated to the new loan for the
refinance to be approved, and can't be rolled into the new loan.
You also cannot take cash out of a streamline refinance with either
the FHA or VA.
Streamlined refinance for some USDA loans
A similar streamlined refinance is available to borrowers whose
mortgage is a Rural Development Loan through the USDA. However,
that is a pilot program that is currently available in only 19
states. Its formal name is Streamlined Refinancing for Rural
One of the biggest obstacles to refinancing through HARP is that
the program is open only to mortgages that are backed by Fannie Mae
or Freddie Mac. That leaves out a lot of mortgages that were
originated before the financial crisis that didn't qualify for
Fannie or Freddie backing - such as stated-income loans or
option-ARMs where borrowers could initially make monthly payments
that didn't keep up with their accumulated interest.
Mortgage settlement refinancing
There are a few options opening up for these borrowers as well.
First, under the $26 billion foreclosure abuses settlement the
government reached with the nation's five largest banks,
approximately $3.5 billion will be dedicated to supporting
refinancing for underwater borrowers with non-Fannie Mae or Freddie
Lenders are contacting borrowers who might qualify for
refinancing under the agreement. However, if you are underwater on
a mortgage that is not backed by Fannie Mae and Freddie Mac, have
kept up with your payments, and your mortgage is handled by Wells
Fargo, Bank of America, JP Morgan Chase, Citibank or Ally/GMAC, it
wouldn't hurt to take the initiative and inquire whether you might
Possible new program in the works
In addition, the administration is asking Congress to approve a
program that would allow underwater borrowers with non-Fannie or
Freddie mortgages to refinance into an FHA mortgage, provided they
are current on their payments. It's estimated this would give an
estimated 3-4 million underwater borrowers who are currently locked
out of other programs an way to refinance their mortgages to a
lower interest rate.
Though the prospects for such legislation are uncertain, with a
election coming up this fall the odds of its passage will depend in
large part on the importance legislators of both parties attach to
appealing to the votes of frustrated homeowners.
This article was originally published on MortgageLoan.com: