How to Refinance Underwater Mortgages

by Ines L. from Excelsior, Minnesota

Ask Kate how to refinance underwater mortgages with HARP 2, HAMP loan modification, FHA short refinance, and FHA streamline refinancing: Thousands of homeowners with good credit and timely mortgage payments are still unable to refinance with blockbuster HARP interest rates. Ines asks how she can qualify for affordable monthly house payments in spite of underwater financing.


Ines asks Kate About Refinancing Her Underwater Mortgage

Hi Kate.

Because we refinanced our home on June 30, 2009, we were not eligible for the HARP loan. We are currently upside down on our mortgage.
Ask Kate how to refinance your underwater mortgage with HARP 2

We wanted to refinance because of the low interest rates and was hoping to get a 20 year loan. But because our house does not appraise high enough, no bank will lend to us.

We are current on our mortgage. And we have good credit. Is there any program out there that we might be able to qualify for? It is the appraisal that kills us.

Thank you, Ines

Kate Answers: How to Refinance Underwater Mortgages

***zz-portrait-left.shtml*** Dear Ines,

In spite of lenient appraisal guidelines, Making Home Affordable has so many other requirements, it excludes many homeowners.

For example, HARP 2 will only refinance mortgages sold to Fannie Mae or Freddie Mac on or before May 31, 2009.

To participate in the HAMP loan modification plan, homeowners must have completed their current refinance on or before January 1, 2009.

This seldom understood rescue plan, FHA Short Refinancing, does not impose cut-off dates. However it cannot be used to refinance underwater Fannie Mae, Freddie Mac, and Federal Housing Administration (FHA) financing. The same holds true for United States Department of Agriculture (USDA) and Veteran Administration (VA) guaranteed home loans.

FHA Streamline Refinancing

On the flip side, if a mortgage is not currently insured by FHA, FHA streamline refinancing, which often does not require an appraisal, is not an underwater homeowner option either.

President Obama HARP 3 Refinance Proposal

Bottom line? Many homeowners, just like you, are excluded from taking advantage of today's low mortgage rates.

This is why President Obama, followed by various members of Congress, proposed a new generation of the Making Home Affordable Refinance Program version 3. As it is being currently discussed, HARP 3 would not exclude homeowners from refinancing an underwater mortgage based on the type of existing financing.

But sadly, HARP 3 news is scarce since the last proposal, Rebuilding American Homeownership by Oregon’s Senator Jeff Merkley.

Proactive Plan of Action to Affordable Homeownership

So how are you going to qualify for affordable house payments? Here's your 2-step plan for affordable homeownership.
  1. Write your elected officials: We know Washington D.C. represents the people, including homeowners with upside down financing. So write the President, Senators, and Representatives in the House. Tell them what you need and expect as a voting and tax paying underwater homeowner. Give them details. The squeaky wheel gets the oil!

  2. Pay off your mortgage early: Am I serious? Yes! Imagine for a moment you never need to make another house payment. What if you never again owe the bank even one penny? This is why I recently wrote a book about getting out of debt. A little known technique, it's brilliant because you don't need to come up with extra money.
So don't be afraid that my plan to pay off your mortgage early will require you to sacrifice your lifestyle. It doesn't! That what makes it so brilliant!

Learn more about liberating yourself from the burden of debt at The Mortgage Freedom Project.

Good luck and best wishes,


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Comments for How to Refinance Underwater Mortgages.

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Refinancing Underwater ARM
by: Karen in Hampton, Virginia

I have a conventional loan with an adjustable rate mortgage. I owe more than the appraisal but need to get out of the ARM. What are my options?

Hi Karen, Kate here...

1. If Fannie Mae or Freddie Mac back your current mortgage, you may be eligible for Making Home Affordable's HARP 2.0 refinance program.

Read more about HARP 2.0 Refinance here.

2. If your loan servicer participates in Making Home Affordable's HAMP loan modification program, that would be a 2nd option.

Read more about Loan Modifications here.

3. Otherwise, call you loan servicer for an in-house modification to your existing terms. Go to Who Modifies My Mortgage for help and clarification.

Best wishes, Kate

P.S. Not sure what entity backs your current mortgage? Go here for help determining if you have a Freddie Mac or Fannie Mae mortgage.

Not a Good Loan Modification
by: Bruce from Las Vegas, NV

Kate, Chase told me I do not qualify for HAMP or HARP but that I do qualify for their in-house financing which still isn't that great of a deal for me...

My mortgage is at 600k, the house appraised at 300k, and the loan mod rate for 1st year is 3.5%, 2nd year 4.5% and years 3-30 5%...

I think I need a better loan.

Hi Bruce, Kate here...

Let's compare Chase's in-house offer to Making Home Affordable's HAMP loan modification program. If the initial rate is below the current market, your rate is fixed for 5 years. Afterward, the rate can go up 1% annually until reaching a predetermined cap.

But if the initial rate is not set below current market, the rate can be fixed for the entire term of the mortgage.

Don't be afraid to ask what specifically keeps you from taking advantage of HAMP or HARP. I say this because lenders are known to make mistakes in qualifying. Maybe you can clear up a misunderstanding on their part that could free up your mortgage for HAMP loan modification or HARP refinancing.

Best wishes, Kate

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