Refinancing for underwater borrowers

Mortgage rates dropped again this week, but refinance applications also declined. One bright spot that may change the refinance picture for homeowners is that the long-awaited revised version of the Home Affordable Refinance Program (known as HARP 2.0) should finally get off the ground this month.

Homeowners who owe more on their mortgage than the value of their home and who meet other qualifications of the HARP program should reach out to lenders, who should be receiving underwriting software from Fannie Mae and Freddie Mac later this month.

According to Michael Fratantoni, vice president of research and economics for the Mortgage Bankers Association (MBA), “HARP volume continued to grow as a share of total refinance volume, reaching roughly 30 percent of refinance activity in the last two weeks. Typical HARP loans had loan-to-value ratios above 90 percent, indicating that lenders are reaching out to underwater borrowers.”


Once the new software is available, lenders will be able to approve loans for more than 125 percent loan-to-value. Lenders can set their individual guidelines for how much they are willing to refinance above the home value, but they also have the option of using an automatic system instead of an appraisal to establish home value.

According to CoreLogic, 27.8 percent of all homes with a mortgage are either underwater or have less than five percent equity.

Estimate your equity
If you are considering a home refinance and are underwater, you may want to try one of two new mortgage calculators on the HSH.com website. These “KnowEquity” calculators help you determine how long it will take before you are no longer underwater and what it will take to have positive equity by a specific date. You can find out what a combination of mortgage amortization, loan prepayment and price appreciation can do. That calculation can also help you decide if refinancing under HARP or another program is worthwhile.

Refinancing rates

Refinancing applications declined for the fourth consecutive week during the week ending March 9, according to the MBA, decreasing by 4.1 percent. According to HSH.com, mortgage rates dipped to 4.01 percent for a 30-year fixed rate home loan during the week from March 7 to March 13. Five-year adjustable rate mortgage (ARM) rates dropped to a record low of 2.92 percent. An ARM can be a good option for borrowers who intend to sell their home or pay off their mortgage in full before the rate resets.

Contact your lender and other lenders for details about the HARP program.
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