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HARP Refinance Program for People with Underwater Mortgage Problems

If you have been rejected for refinancing because you have an underwater mortgage, you may have another chance with the HARP refinance plan that was recently endorsed by President Obama.

Fannie Mae and Freddie Mac May Have Come Together to Assist Underwater Homeowners

The Obama Administration is reportedly pressuring Fannie Mae and Freddie Mac to reduce mortgage balances of underwater homeowners. The government got smart and enhanced the value of refinancing for HARP lenders.

The administration wants the two mortgage giants to underwater homeowners, underwater mortgages, Fannie Mae, Freddie Mac join the Federal Housing Administration program that lowers mortgage balances of homeowners with first mortgages larger than their home values, The Wall Street Journal reports, citing "people familiar with the situation."

That would be a big deal if it happens - Fannie Mae and Freddie Mac own or guarantee about half of the first mortgages in the country. But then again, based on the FHA's experience, you'd have to wonder if it will work.

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Obama's people evidently believe that reducing mortgage balances will help the housing market and reduce foreclosures. But the problem is that you don't get something for nothing, and lenders and investors owning mortgages lose money when they reduce mortgage balances.

Fannie Mae and Freddie Mac are now under government conservatorship, so if they lose money U.S. taxpayers lose. And their regulator, the Federal Housing Finance Agency, is charged with saving the taxpayers money. As it stands now, the mortgage giants already owe the government $134 billion. HARP lenders can't refinance a home equity loan but they can refinance their 1st lien regardless of how underwater their mortgage is.

If they cut mortgage balances, they can't try to force the lender to buy back the loan and can't file a claim with the mortgage insurance company. That's why Fannie Mae and Freddie Mac don't do reduce mortgage balances now, or at least rarely do. Its effectiveness is another issue.

HARP Lenders Provide Payment Relief with No LTV Restrictions on Home Refinancing

Federal officials say 500,000 to 1.5 million homeowners could benefit from such a program, according to the WSJ. Even if that's true, it would be a drop in the bucket. Some researchers estimate that almost a quarter of households with mortgages might be underwater. And would it really prevent mortgage defaults and foreclosures?

Don Bisenius, a Freddie Mac executive vice president, told the WSJ that "the vast majority of borrowers - even borrowers who are underwater - continue making their payments."

Second mortgages pose another problem. Lenders might refuse to reduce the mortgage principal if the second-mortgage lenders balk at cutting principal balances on their loans.

So far, the FHA Short program, which refinances mortgages of underwater homeowners, has prompted more controversy and criticism than improvement in the housing market. Although up to 1.5 million homeowners were supposed to be eligible for the program, it has refinanced precious few loans. Lender participation is voluntary and few lenders are participating. Combined loan to values, or the first and second mortgage combined, must be no more than 115 percent, under the program's rules, which limits participation.

Second-mortgage lenders have generally been unwilling to take losses. Homeowner applications to the program have been limited, probably because of the program's guidelines and paperwork requirements. Find out today if our HARP lenders can rescue your underwater mortgage.

Borrowers commenting on our blog have expressed frustration about the program. Underwater homeowners can also apply for the Home Affordable Refinance Program (HARP) to refinance into current mortgage rate.


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Get a more info on HARP and a refinance for an underwater mortgage.