Low Mortgage Rates But Can't Refinance Because I'm Upside Down

What good are 4.5% mortgage rates if I can't refinance because i'm upside down on my house?

4 Answers

I feel your frustration but the bigger picture can ultimately help your situation. If you're unable to personally refinance and lower your rate there is still benefit.

Lower mortgage rates will allow other people to refinance and possibly keep their homes rather than sell (for low value) or go into foreclosure. This is good for stabalizing values.

Lower mortgage rates will also spur home purchasing that will help drive values up. This is just simple supply and demand and your homes value is based on homes that sold in the past 3-6 months. Lower rates help you to recover your lost equity.

I'm a mortgage professional and also have a home in a down market with lost equity.  I'm not able to refinance to improve my financial situation at this time either so I do personally understand. But rest assured, it's still a good thing.

Refinancing with a great low rate and being up-side down is a mortgage paradox for many.  We have the lure of a great rate (which was a national average of 5.10% on a 30 year fix conventional loan on 12/31/2008) and the inability to qualify because the home's current value is less than the outstanding balance.

For some homeowners, they may already have a 30 year fixed with payments that they are able to afford (unless they suffer loss of income or other negative financial related events).  In this case, if they just have to wait several years until values increase to refinance - assuming rates are competitive at that time.

Other homeowners may be in trouble in real time and need help now.  You may want to look into an FHA Secure loan.  Among other criteria for qualification, you can not have missed more than 3 months payments in the last 12 months, have verifiable income to make you payments and other expenses, AND your current lender must be willing (as in volunteer) to write-off a portion of your outstanding balance so you will no longer be upside with your new loan.

For details on FHA Secure, please visit the FHA website at http://portal.hud.gov AND call you lender to find out if they participate in the FHA Secure program.

I am a Realtor and a Mortgage consultant and I run across this situation on a regular basis. FHA has come out with a new program on Oct. 1, 2008, it is called the Hope program. You need to contact your lender and ask them if they are participating in the new FHA Hope program. If your lender says yes then what happens is that they forgive you of a great deal of your mortgage so you can get refinanced at a 90% loan to value. Many brokers/lenders are not concentrating on this program since they have a lot of new business. This program require that the broker/lender do a little work.

I understand your frustration. I was in a similar situation on my personal residence.

What I did was call up my lender and request a loan modification. I was not late on my mortgage and I was still able to get the loan modified.

You will have to show a hardship which is usually due to an ARM adjusting or some other extenuating circumstance. Have you tried taking that route with your current lender?

A refinance is obviously not going to be an option for you so for the time being a loan modification may be your only way out. There are several programs that "claim" to be able to refinance you such as the hope for homeowners program but in actuality there are no lender participating in them at the current time. At least not that we have found.

I wish you the best of luck and am sorry to hear about your sitation.