Refi of underwater mortgages.

Asked by Maryann, Pottstown, PA Thu Mar 25, 2010

My mortgage is under water and my lender has switched to being a debt collection agency. Is there anyone out there that will do a refi forunderwater loans that were originally done with another entity?

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Keane Ng, Mortgage Broker Or Lender, Renton, WA
Thu Mar 25, 2010

I can't stress enough how important it is that you talk to people who specialize in this field. The answer is emphatically YES, it is possible. Of course, there's many variables you need to work out before you know if you qualify, but there's definitely a possibility and many homeowners are refinancing their homes with little/no equity and backwards equity. It all depends on the scenario.

Here is a summary of options:


The only option for a loan at 101% or higher of your home value is HARP, which is what John is eluding to. HARP stands for Home Affordable Refinance Program. This is a government sponsored program to help homeowners refinance who have little to no equity. The loan must be a Fannie Mae or Freddie Mac loan. Technically, you can do it if the loan has mortgage insurance but I have not heard one scenario where the lender is accepting these loans with mortgage insurance. The availability of these loans were pretty limited when they were first rolled out a year ago but many lenders do them now. Also, as John mentioned, most second mortgage companies will subordinate their loan to help you refinance the first mortgage. The only lender I've heard that will not is Key Bank. Another thing. Even though the program says you can go as high as 125%, most lenders are capping the value at 105-110% of the home value for the first mortgage. There's no limit to what the second mortgage can be.


As mentioned above, HARP allows you to go to an unlimited value on your second mortgage. Another good option is FHA, which goes up to 97.15% or 97.75% of your value on a first mortgage and no limit on your second mortgage. The nice thing about FHA loans are that the credit requirements are much looser than HARP and you also do not need to have a Fannie Mae or Freddie Mac loan. My favorite FHA option is a 15 year loan at 90% of the value with a second over 100% of the value. FHA does not require MI on 15 year loans at 90%, so I can give a client a great 15 year rate with no mortgage insurance even though the second is over 100% of the value. I've already closed a loan like this. Some FHA lenders do not allow the high values on the second mortgage but that is a lender specific guideline. If you need this loan, you can find a FHA lender who will do it. It's within the guidelines.


VA loans are a great option up to100% since the VA now allows 100% refinances of non-VA loans. However, you cannot be higher than 100% on one or two loans with VA. 100% is the absolute limit. VA has only allowed 100% refinancing of non-VA loans since October of 2008.

Here are some resources and blog posts I wrote on the topic. The "Homeowners Guide to HARP has everything you'll need to know about HARP and all the alternatives. I know for a fact that hundreds of not thousands of homeowners who qualify for one of these programs has been turned down. They're not the easiest loans to do but they will work and I've done many of them. As you can see from the first responses on this thread, even many real estate experts do not know about this program.

Fannie Mae’s lookup tool:

Freddie Mac’s lookup tool:

Full guide to HARP loans, how to qualify and all the alternatives:

Problems with refinancing HARP loans with mortgage insurance:…

Problems getting 2nd mortgages to subordinate (only Key Bank at this moment that I know of):…

Thumbs up for John!

Scott and Edmond,

I hope that you also take the time to learn about these options so you can help your homeowners. It's obvious that not enough press is out on these programs. Even when people do learn about them, they hit many hurdles in the approval process. The "Homeowners Guide to HARP" blog I wrote helps most consumers and loan officers overcome the hurdles of getting a loan approved plus additional options.


To clarify my point, you do NOT need to be the existing servicer to do HARP or FHA loans that are underwater :)
2 votes
Maryann, Home Buyer, Pottstown, PA
Thu Mar 25, 2010
Unfortunately due to the lender no longer lending and being a debt collection agency, they tell me that they cannot do anything. I tried there first. It was disconcerting when I called being on hold since every two minutes they stated that they are a debt collection agency.
I am hearing about options that some lenders are starting to offer, but it seems that none of that applies to us since we purchased responsibly within our means. We have no issues paying our mortgage thankfully, despite it being a fixed rate interest only mortgage. The housing bubble hit just as we were about to refi to a better loan and it has been frustration from there.
0 votes
Edmund Choi, Agent, Paoli, PA
Thu Mar 25, 2010
I'd suggest contacting your lender and asking for a loan modification. The process is intensive and will take several weeks, but if successful it may be the relief that you are seeking.
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Scott Godzyk, Agent, Manchester, NH
Thu Mar 25, 2010
Maryann your chances for a refinance where you owe more than teh house is worth is very limited to near zero. There are new programs being put in place every day by individual lenders, your best chance is to call your lender, ask for the home retention department, let them know your situation and see if they can modify your loan by lowering interest rate which lowers payment or perhaps a new program like BOA launched this week where they will write off up to $30,000 if you abide by the terms of their program. good luck working things out
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