Underwater mortgages are a serious problem here in South Florida. When home loan balances are higher than the fair market value of the home itself, the homeowner is “upside down” on his or her mortgage. This scenario increases the temptation for the homeowner to walk away, especially when facing higher property taxes and home insurance. Walking away has its own risks: lenders are suspicious of “strategic defaults,” especially when borrowers who can afford the mortgage payment choose not to pay their underwater mortgage; many banks will aggressively pursue these homeowners.
However, Washington may be trying to resolve the dilemma of the Underwater Mortgage.
For homeowners who are paying on their underwater mortgages and have not been able to successfully negotiate themselves into a lower mortgage (a modification with a lower interest rate), there may be help on the way. According to Federal Housing Finance Agency Acting Director Edward DeMarco, the HARP program may be revised to help more homeowners in Florida and elsewhere.
How? For one thing, the HARP ceiling for Loan To Value may be raised to 125% LTV.
Details are not available now, but the idea from the feds appears to be bringing Fannie Mae and Freddie Mac to the table, and allowing underwater homeowners to negotiate out of their current notes and into new mortgages that would be backed by Fannie Mae or Freddie Mac: interest rates would be lower, and there would not be much in the way of refinancing costs. All this could happen swiftly via the expansion of the Home Affordable Refinance Program, which is already in place.
Good thing too: today, the Federal Reserve just released a new study (read it here). Even with today’s record-breaking low mortgage interest rates, there has not been much refinancing activity. Seems the Federal Reserve has confirmed that lenders have not been that available to lend or negotiate new mortgages with underwater borrowers – even if they have a clear ability to pay and are not in default.
If you have an underwater mortgage and are weighing your options, please remember that every option available to you has legal ramifications and far-reaching consequences. Seek professional advice and act wisely, which admittedly can be hard to do in these emotionally frustrating circumstances.