All Things Financial Planning Blog

Can You Refinance Your Underwater Mortgage?


On October 24th President Obama announced a new plan to help borrowers refinance their existing mortgages to new loans with lower interest rates and cheaper monthly payments.

The plan is an expansion of the current program called HARP, The Home Affordable Refinance Program initiated in 2009 to let homeowners refinance their mortgages to lower rates. This new expansion is meant to help borrowers who are current on their home mortgage payments, but cannot refinance because they do not have enough equity in their home, or are underwater – which means they owe the bank more than their home is worth. According to CoreLogic, a real estate data firm, approximately 22.5% of U.S. homeowners are underwater representing about 11 million.

When the Obama administration launched HARP in 2009, it was hoped that the program would help 4 to 5 million homeowners. But as of August 31st fewer than 900,000 homeowners had been assisted by the program. The Obama administration hopes that this expansion will help as many as 800,000 additional homeowners. But will it help struggling homeowners and strengthen the housing market – a market that is a corner stone to any sustainable economic recovery.

Many believe that this new opportunity to refinance will be most helpful to those borrowers that owe less than their original mortgage, but not the 20% or more in equity that banks now require. But the program is primarily aimed at borrowers that are current in their mortgage payments, but owe more than their homes are worth – underwater. The problem since 2009 with the “old” HARP is that banks are under no obligation to refinance a mortgage underwater and this does not change with this new plan.

So are you eligible to refinance your mortgage – even if you are underwater? If you have a mortgage loan backed by Fannie Mae or Freddie Mac you may qualify for the refinancing program if your loan was sold to Fannie or Freddie BEFORE June 2009. You can find out if your loan was sold by going online at  or If your mortgage was refinanced over the past 2 ½ years, you will not be eligible for refinancing – you probably already have a good interest rate anyway. Additionally, you MUST be current on your mortgage. One late payment in the past six months or more than one in the past year makes you ineligible.

What are the new program changes? Homeowners may be eligible no matter how far their home value may have fallen. Some fees for closing, title insurance and other processing fees will be eliminated making refinancing less expensive and the number of homeowners that will need appraisals will be reduced. This biggest incentive for banks – they won’t have to buy back the mortgages from Fannie or Freddie as they previously had to do, even if the bank considered the loan risky. This change alone may spur banks to work with people sincerely trying to keep their homes. Fannie and Freddie are due to release the full details of the plan on November 15 and the program could be offered as early as December 1, 2011.

If you believe that you may be a candidate for this expanded refinancing program, plan to contact your bank in the coming weeks to determine if they are willing to work with you to lower your monthly payments. This additional help for homeowners is long overdue, but it will take some time to see if this enhanced program will be a success.

Pamela SandyPamela Sandy, CFP®
CONFIANCE, LLC, Financial & Investment Advisors
Cleveland, OH

Author: Pamela Sandy, CFP®

Pamela Sandy, CFP® is founder of CONFIANCE, LLC, Financial & Investment Advisors. Since 1991 Pamela has offered her clients investment advice and financial planning services, but more importantly a professional partnership that centers on the belief that trust is the basis of any true relationship. The firm name, CONFIANCE is the French word for trust. Her clients include professionals, entrepreneurs, entertainers, and individuals living around the country and traveling abroad. She believes passionately that the financial planning profession is essential in the lives of not only the affluent, but those everyday individuals and families faced with important financial decisions affecting their lives. Based upon her belief that the financial planning community has a role to play in advocating for America's families, in June 2009 Pamela authored a white paper entitled, A Profession at Risk. The paper presented her view that the profession must use its collective voice to represent the interests of the investing public. She serves as a board member of the Northeast Ohio Chapter of the Financial Planning Association, where she chairs the Government Relations Committee, and is a member of the Public Issues Advisory Committee, a workgroup of the Financial Planning Association, national.

19 thoughts on “Can You Refinance Your Underwater Mortgage?

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  2. I have a 2006 Alt A loan from Wells Fargo Bank at 8.375% fixed rate, 30 years. I have never been late once. I am also a 69 yr old female veteran with a 44 yr old disabled son. I have tried for two years to get America’s Servicing Co, owned by Wells Fargo to lower my interest rate. I have not asked for a reduction in my principle even though my house is now over 20% under the mortgage amount of $120,000 that I owe. There is no PMI insurance on the loan and it is held in their own portfolio. They won’t help me at all. I keep explaining that I have too much debt to income to qualify for a regular mortgage. Does this new program starting Dec 1st, 2011, help me. The VA can’t help me refinance to a VA loan.

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