HARP Interest Rates and Underwater 2nd Mortgages

by Bill in Colorado Springs, Jennifer in Raleigh, Stephanie in VA, and Patricia...

Ask Kate about HARP interest rates and underwater refinancing with 2nd mortgages: Meet Bill, satisfied with his HARP refinance, who needs to refinance his 2nd mortgage. Jennifer and Stephanie both question the interest rates and fees on their HARP Good Faith Estimates. But lastly is Patricia. Her letter leaves me feeling our banking system has sadly failed her family and her home.


Question 1: HARP 2 Done! Refinance 15 Year Balloon 2nd Mortgage Next

By Bill in Colorado Springs, CO
HARP Interest Rates - HARP with 2nd Mortgages

Hi Kate, I recently completed a HARP 2 refinance of my personal home. Everything went well including the subordination.

Now I'd like to refinance my 15 year 2nd mortgage with a balloon payment due in 8 years to a fixed rate fully amortized loan.

My house value is underwater by about $20,000. 1st mortgage is for $168,000 and 2nd is for $40,400 with a $34,000 balloon. Appraisal has home value at $181,400. Credit scores are in the 750 range.

Where will I find a lender who would do this? Your advice GREATLY appreciated!

***zz-portrait-left.shtml*** Ask Kate answers: HARP 2 Done! Refinance 15 Year Balloon 2nd Mortgage Next

Hi Bill,

Hurray, so happy to hear of your positive HARP 2 refinance experience. Congratulations on your success. When lenders work within the parameters of Making Home Affordable programs, it's truly marvelous for underwater homeowners!

But as to your question, truthfully I'm not sure you will find a new 2nd mortgage lender willing to subordinate to a 1st mortgage with insufficient equity.

It's one matter for a lender who is holding the 2nd to agree to subordinate after equity takes a downturn. But because 2nd lien holders often lose their investment due to foreclosure, it's another matter altogether for a lender to fund a new 2nd when the current appraised value is less than both mortgages combined. I hope you can prove me wrong.

If I were in your position, I'd roll up my sleeves and start shopping. Go here for my 6 steps to online comparisons of interest rates, loan programs, mortgage originators, and banks.

Of course, the best way to find lenders is to ask for referrals from relatives, friends, and co-workers. However their experiences might not match your scenario.

But if you could bring $20,000 to the transaction, you might be more apt to find a willing lender. Flipping the pancake, you might just consider using the cash to pay down your existing 2nd.

Best wishes,


Question 2: HARP Interest Rates and Closing Costs

By Jennifer in Raleigh, NC

Hi Kate, I have just discovered that I could qualify for a HARP refinance for my investment property that is slightly underwater. Freddie Mac valued the house at $185k and I owe $187k.

I previously lived in the house, but started renting because I couldn't sell. My current mortgage is a 40 year fixed mortgage at 6.375%. I was just quoted a new mortgage for 30-year fixed at 4.125% and over $5,000 in closing costs.

That seems quite large to me. It lowers my payment by $182 a month, but the principle would be right back to where I bought it in 2007.

I have made the mistake of giving them my social security number. Can I still shop around, or do you think this is an average deal? Thank you in advance for your advice. Jennifer

***zz-portrait-left.shtml*** Ask Kate answers: HARP Interest Rates and Closing Costs

Hi Jennifer,

Keep in mind, refinancing rental property is more costly.

I suggest you take the Good Faith Estimate and break it down. How much of the $5000 is going to loan fees and other refinance costs?

How much is designated to property taxes, homeowners insurance, and prorated interest? These charges are recurring closing costs, fees you'd be paying even without refinancing. Go here for more details on understanding Good Faith Estimates.

Ask your lender to break down the cost if you still aren't sure. Then ask how much refund you'll receive from current property taxes and homeowners insurance held by your lender for future payments. You might also be skipping one month's payment.

If so, take an amount equal to a missed mortgage payment, add it to property tax and insurance refunds, and pay down the new mortgage balance to a more acceptable level.

Then read my book, The Mortgage Freedom Project, which will show you how to pay off the bank and be done with them once and for all!

Best wishes,


PS I received a similar question from Stephanie in Virginia who asked...
A company offered me a HARP refinance however I'm worried. I owe $214,900 but once they are finished, the offer is with 3.8% but with fees, the price totals $220,000. Am I being over charged?

Stephanie, Kate here! Please see my above answer to Jennifer which applies also to your question.

Question 3: Harp 1st Mortgage Fannie Mae 2nd Mortgage Not Participating Member

By Patricia

Hi Kate, I have been reading your website/blog questions and answers for some time, and it has been a wealth of information for me. Our home would probably appraise at around $254000.

We owe $224,000 on our first mortgage (Fannie Mae) at 6.250% and $35,000 on our 2nd mortgage.

So we are underwater, in essence, on the 2nd mortgage. My husband is retired, no pension, just social security. I have my own business and we have been paying our mortgage as of late from my IRA (I'm 55 - so double taxation). We tried refinancing under HARP last year but because our 2nd mortgage (in a subordination role) is held by Capital One we did not qualify because they are non-participating member to HARP, so would have to do traditional.

The traditional means all the fees tacked onto the note, and $545 out of pocket cost for the appraisal and some other fee. I stopped the traditional refinance and I looked at HAMP and thought we would be perfect for a modification.

We went through the whole HAMP process (we again did pre-qualify) and received a letter stating that we were denied because there was no imminent possibility of default. I guess they just want us to use up all my IRA funds to pay them before they would even consider HAMP.

So when I contacted the 1st mortgage company and asked what other option I had they said HARP. I told them that our 2nd mortgage is non-participating, and they sent me back full circle to the traditional refi which could take anywhere from 60 to 90 days to close.

I'm so frustrated. Do I have to be delinquent on payments to do anything. We considered short sale, but we are willing to stay in our house if we can reduce the payments. Why won't some home equity companies participate in the HARP program? Traditional refi would mean a $400. reduction in monthly note, but then again because it is traditional we might not qualify because we don't make enough money, although we have been pre-approved. Our credit is very good.

Also refinancing would make us further underwater. If we do a short sale our credit would be affected and I really do worry about the moving expenses as well as trying to find a rental when your credit has the short sale on it (plus I have 3 dogs).

In saying all this, I guess I am asking if there are any plans in this new HARP 3 to extend this to people who have a second mortgage that is with non-participating HARP banks? Patricia

***zz-portrait-left.shtml*** Ask Kate answers: Harp 1st Mortgage Fannie Mae 2nd Mortgage Not Participating Member

Hi Patricia,

I feel so sad reading your story. Refinancing your home shouldn't be this haphazard.

As I read your letter, I was thinking of HAMP loan modifications until I saw you had tried that also.

I wish I could tell you more about the latest HARP 3 proposal but the details are sketchy.

So I will end with two suggestions. Read about the Making Home Affordable Foreclosure Alternatives. Then go to Will Fannie Mae Allow True Mortgage Loan Modifications and scroll down to the comment section for my 4 easy ways to write your elected officials. Your story must be told.

Thank you for your kind words about my website.

Got questions? You are invited to ask Kate for answers. ***zzz-link-harp-news.shtml***

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Second Mortgage Refi and HARP 2.0
by: Mari from California

We are in the process of refinancing our home through Harp 2.0. Our broker said he would subordinate the second mortgage we have. We have already submitted the loan app which is in process. Last night he said that he has looked over our loan and that he would recommend that we include our second, so that we could have only one Mortgage payment. He said subordinating could take weeks.

I was under the impression that secondary mortgages could not be included in Harp 2.0, has this changed?

Hi Mari, Kate here...

No changes to HARP guidelines for 2nd mortgages! In fact, to quote Making Home Affordable:
I have both a first lien and a second lien mortgage. Do I still qualify for a refinance under HARP? Answer: The lender that has your junior lien mortgage must agree to remain in a junior lien position.
By the way, the broker or lender requests the subordination but only the lien holder can subordinate your 2nd mortgage. I'm not trying to split hairs, but it IS an important distinction.

Best wishes, Kate

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