Since the start of the housing crisis, millions of homeowners have been able to refinance their mortgage through special programs. As home prices have increased this year, many properties have returned to positive equity making it possible for homeowners to refinance through traditional channels. However, according to CoreLogic, 9.7 million homeowners are still underwater at this time. For this group of homeowners, there are 3 ways to refinance an underwater mortgage.
1. HARP 2.0 – The Home Affordable Refinance Program
HARP 2.0 is a refinance program that is specifically for underwater conventional loans. These loans must have been sold to Fannie Mae or Freddie Mac prior to June 1, 2009. With HARP 2.0, the maximum loan to value has been eliminated so that any eligible underwater homeowner could apply. As of March 2013, 2.3 million homeowners have used the HARP loan program for refinancing to a better mortgage, according to the latest data from CoreLogic. The HARP program remains in effect until the end of 2015 in order to reach as many homeowners as possible.
Borrowers are not limited to use their original lender or servicer, but can use any lender that offers HARP refinances. This is important because lender overlays and guidelines for the HARP program can differ and mortgage rates can be competitive.
2. FHA Streamline Refinance
The FHA streamline refinance is not a new mortgage product, but has been available to FHA mortgage holders for quite some time. This program allows homeowners with existing FHA loans to refinance without the need of employment and income verification, credit verification or appraisal as long as any available equity is not taken as cash. Without the need of an appraisal, the FHA streamline is another perfect mortgage product for underwater mortgages.
Until the end of 2013, the FHA streamline has been further enhanced for loans that were endorsed prior to June 1, 2009. These loans that refinance through the FHA streamline program will receive reduced upfront and annual mortgage insurance premiums for the life of the loan.
To be eligible for the FHA streamline refinance, the mortgage must already be FHA insured. The current mortgage cannot be delinquent and must have a good mortgage payment history. The new refinance must show that there is a “net tangible benefit” which means that the new monthly payment must be lower or there is a move from an adjustable rate mortgage to a fixed rate mortgage.
3. VA IRRRL
The VA IRRRL stands for the Veteran’s Administration’s Interest Rate Reduction Refinance Loan. Many of our members of the armed forces currently have VA loans that enabled them to purchase a home without the need of a down payment. While the VA IRRRL is available on a regular basis, it has become another perfect option for those who are underwater since this refinance does not require an appraisal or any credit underwriting to be performed by the lender. To be eligible, there must be an existing VA mortgage on the property.
The whole reason to refinance an existing mortgage is to save money in some way or form which is easily done when mortgage rates are lower than the rate that was given for the initial mortgage. Since an underwater mortgage is normally not eligible for refinancing, these three available programs have been a lifesaver for many homeowners who lost equity in their property. By being able to refinance, these underwater mortgages are now able to regain equity at a faster pace while, at the same time, provide most borrowers with reduced and more affordable monthly mortgage payments.
Rosemary Rugnetta has been writing since 2010 for FreeRateUpdate.com, a company that matches consumers with banks and lenders offering low mortgage rates. Previous to her writing career, Rosemary spent 13 years working hands-on in the mortgage industry as a mortgage loan analyst, certified mortgage underwriter, loan processor and property manager.