Refinancing Options for Underwater Homeowners

Residential Real Estate Lawyer Mortgage Homeowners Selling Real Estate

There is new relief in sight for homeowners “underwater” on their mortgage, where the market value of the property is less than the outstanding payoff of their mortgage. Previously, only those whose mortgage was no more than 125% of the market value of their home were eligible, and then only in certain circumstances. That permitted only 838,000 homeowners to take advantage of record-low interest rates by refinancing. But under new guidelines announced by the federal government, the Home Affordable Refinance Program (“HARP”) will be accessible to those who are significantly underwater, that is, their outstanding mortgage exceeds the prior 125% threshold. Here are the criteria for the program:

  • The loan must be backed by Fannie Mae or Freddie Mac
    • FHA and jumbo mortgages are not currently eligible
    • The loan must have originated prior to June 1, 2009, newer loans are not eligible
  • The borrower must be current on the mortgage for the last 6 months, and only late once in the last year
    • Previously only delinquent homeowners were eligible
  • There is no loan to value restriction
  • Income verification is still required, so the borrower must be employed
  • Other traditional underwriting standards apply (e.g. credit score, assets, etc)

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