Underwater 1st and 2nd Mortgage Refinancing
by Sandy W.
Ask Kate about refinancing your underwater 1st and 2nd mortgages: Sandy's 1st mortgage is a fixed rate. But her 2nd, an adjustable rate mortgage with a looming balloon payment, was a bait and switch at closing when she purchased her home in 2006. Complicating the loan approval process, her type of property is not simple to appraise. Since Sandy is being forced into retirement next year, she asks how to get one affordable house payment.
Sandy asks Kate about Refinancing Her 1st and 2nd Mortgage
I am one of the unfortunate homeowners who originally had private loans (non Freddie Mac nor Fannie Mae...Aurora and HSBC) equaling 20% of my purchase price.
I bought a house for $378,500 in April of 2006, and currently owe (with savings included) approximately $327,000.
The HSBC was a home equity type of loan which was a bait and switch at the closing. It will balloon out in approximately 3 years.
I have never missed a mortgage payment in my life, with credit approaching 700 (husband died in 2007 and destroyed my credit in the process). Prior to refinancing, I could decrease my $7,000 of debt by 50% to improve my credit rating.
In June of 2014, I am being forced to retire and will be bringing significantly less money in. I had counted on refinancing this mess at some point, but it doesn't look very good right now.
A comparable in the neighborhood sold for $300,000. There are a couple of comparables in the same town that are 4 or 5 miles away that sold in the high $300,000.00. I have been told that if the appraiser called this "rural" those higher comparables could be used. I live on an equestrian property, which is somewhat unique.
Any thoughts about what I should do next. My goals are to keep my home forever.
PS Also...My first mortgage is now being serviced since June 2012 by Nationstar which is Freddie Mac and Fannie Mae backed, and my first has a fixed rate of 7.25. My second at HSBC can float to anywhere, but is 7.5 right now (before interest rate just shot up). It is an interest only.
Are there any options for me to refinance the whole thing into a fixed loan?
Will look forward to some solution. I have a huge salary (for me) this last year I am working and will be saving as much money as possible ($130,000).
Kate Answers: Underwater 1st and 2nd Mortgage Refinancing
Equestrian properties can complicate the loan approval process, especially if they are income-producing or not typical for the area.
Adding to the difficulty, your combined 1st and 2nd loan amounts are greater than the appraised value. Although commonplace today, being underwater reduces refinancing options.
HARP Mortgage Refinancing Option
The Making Home Affordable Refinance Program (HARP) addresses only the 1st mortgage. In other words, it does not allow two loan balances to be rolled together into one. Even so, since your 1st is over 7%, it might be worthwhile exploring a HARP refinance. Read more about HARP 2 Refinancing
But you should know that your 2nd mortgage holder, HSBC, will need to agree to a re-subordination. Read more about HARP 2 and 2nd Mortgage Subordination
HAMP Loan Modification Option
Another option is the Making Home Affordable Modification Program (HAMP). Unlike HARP, homeowners cannot shop for the best deals though. The only choice is to go through the current loan servicer.
Many times, homeowners are offered a principal reduction of the 1st mortgage and after the modification is complete, the opportunity to modify the 2nd. Read more about modifying your mortgage with HAMP
But again, this would be dependent upon the cooperation of your 2nd mortgage servicer.
Call your lenders for more information and ask what kind of terms they would offer. Pay close attention to any future adjustments in the interest rate. And remember to ask for a principal reduction of your loan balance.
You can also call a free Making Home Affordable (MHA) housing expert for personalized options. The phone number is 888-995-HOPE (4673) or for hearing impaired 877-304-9709 TTY. Read more about the HUD-approved housing counselors
Good luck and best wishes getting an affordable mortgage,
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