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Trapped Underwater? Here's How to Escape

July 05, 2012 | Comments: 0 | Views: 173

If you owe more on your home than it's worth, you're not alone. According to data analysts at CoreLogic, 11.1 million mortgages were upside-down by the end of 2011--more than one in five. Those borrowers will have a hard time moving, unless their lenders will agree to a short sale. Refinancing is not usually an option either with a negative loan-to-value.

That's not just a problem for those homeowners; it's a problem for the economy overall.What if even a small portion of those borrowers decides that continuing to pay just doesn't make sense? The phenomenon of strategic default--limited until now-could turn into a deluge. That would send home prices down even further, and jeopardize the solvency of the largest mortgage lenders.

The prospect of that nightmare scenario has prompted the federal government to offer a tempting alternative: Through the Home Affordable Refinance Program (HARP), underwater borrowers who are current can now refinance at today's low interest rates.

What's the catch? None, really, except for a few eligibility requirements:

  • Your mortgage must be owned or guaranteed by Freddie Mac or Fannie Mae.
  • Fannie or Freddie must have acquired the loan on or before May 31, 2009.
  • The loan cannot have been refinanced under HARP previously (Exception: A Fannie Mae loan that was refinanced under HARP from March to May, 2009).
  • The current loan-to-value (LTV) must be greater than 80 percent. (If it's less than that, you probably qualify for a normal refinance!).
  • You must be current on your loan, with a good payment history over the previous year. (That means no 30-day late payments in the previous six months, and no more than one in the past year.)

How do you find out if your loan is owned by Fannie or Freddie? A real estate professional can help you, but you can also access loan information at the Mortgage Electronic Registration Systems (MERS) website.

One of the best features of HARP is the removal of the warrantees and representations requirement that accompanies most mortgages. This is the provision that holds the loan originator responsible if a loan doesn't perform as expected. That may not mean much to you as a borrower, but it has enormous implications for the mortgage industry. With the wave of delinquencies in recent years, entities that purchased bad mortgages on the secondary market have used these warrants and reps provisions to sue the originators. The fear of such lawsuits has seriously hampered the loan origination business, making financing scarce for buyers and refinancing candidates.

For the investors on HARP-eligible loans, refinancing involves less risk than leaving underwater borrowers to fend for themselves. The loans already exist; it makes sense for the investors to do whatever they can to keep the borrowers in good standing.

It all means good news for those who've been watching their home values sink while they continue to make payments.

Find out more about HARP here.

Source: EzineArticles
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