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Homeowners Have Options for Underwater Mortgages

March 16, 2011

If you are a homeowner who owes more money on your mortgage than your home is worth, there are a several options for saving your home. One of the latest is an $11 billion program through theFederal Housing Administration called "Short Refi." Under this program a non-FHA borrower may be able to obtain a new FHA-insured mortgage. 

To qualify for the Short Refi program, the homeowner must be current on the monthly mortgage payments. The new primary FHA-backed loan cannot exceed 97.75 percent of the value of the property; and the second mortgage cannot exceed 15 percent of the property value. Additionally, the lender must agree to write off at least 10 percent of the loan’s principal balance.

Fannie Mae and Freddie Mac loans do not qualify for the Short Refi program. The New York Times reports that 23 lenders have signed on to the Short Refi program and are offering refinancings. Notable non-participants are Bank of America, Citibank, and JP Morgan Chase.

There are several programs available to save an underwater mortgage, so the homeowner is not stuck with a “one-size-fits-all” refinancing dilemma. One federal refinance program that has seen some recent success is the Home Affordable Refinance Program (HAMP). Refinancing a mortgage under HAMP during bankruptcy is specifically authorized and can save the homeowner significant money when combined with a bankruptcy discharge. Additionally, debtors in Chapter 13 bankruptcy may be able to strip off a second or third mortgage if the loan is entirely unsecured. For instance, if the value of the home is $200,000, and the first mortgage is $200,000 or more, then any additional mortgage or lien on the property would be entirely unsecured and could be stripped off during Chapter 13 bankruptcy.

If your home is underwater and you are struggling with debt, speak with an experience bankruptcy attorney and discuss your options. In many cases you can discharge your unsecured debt through bankruptcy and refinance or modify your underwater home loan to new, affordable terms. Get the facts about rescuing your underwater mortgage today.


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