Underwater Mortgage Help Update

Underwater homeowners in the United States currently owe 1.2 trillion dollars more than their homes are worth according to one news source. Considering that the Gross Domestic Product (GDP) of the United States is around 14 trillion dollars this problem is of epidemic proportion. Is there underwater mortgage help for the average homeowner?

Government Underwater Mortgage Help

Government refinance programs like the Home Affordable Refinance Program (HARP) offer a glimmer of hope; however, because lender participation is voluntary this program has yet to live up to its potential. According to economists, nearly 32% of American homeowners are upside down and are in need of underwater mortgage help.

If you bought your home in Las Vegas and are underwater there’s a good chance you now owe double what your home is worth. As you can see from the map above, other large metropolitan areas like Detroit aren’t looking much better.

Good News For Underwater Homeowners?

Economists state that while one in three homeowners in the US needs underwater mortgage help, nine out of 10 of these are keeping up on their payments. The kind of losses from owing more than your home is worth generally only affects the homeowner when they try to refinance or sell their home. Underwater homeowners facing foreclosure typically walk away from their homes.

In his recent State of the Union Address, President Obama is calling for all responsible homeowners to refinance. By responsible he means all those who are keeping up on their payments. If you’re underwater mortgage refinancing hasn’t been an option; however, recent and proposed changes to the Home Affordable Refinance Program (HARP) are trying to change this.

HARP 2.0 & Beyond

The original Home Affordable Refinance Program had a restrictive 125% loan-to-value limit. The majority of homeowners are above the limit to qualify so while the program sounded good on paper, it didn’t help the people that need it the most. At the end of 2012 President Obama announced HARP 2.0 which removed this loan-to-value limit completely.

Has it helped? Unfortunately it’s been too little, too late. Because lender participation in the Home Affordable Refinance Program is voluntary, most lenders have imposed their own loan-to-value limits, many limiting to 105% LTV.

Fannie Mae & Freddie Mac Down & Out?

Another problem with HARP is that in order to be eligible your home loan had to have been picked up by Fannie Mae or Freddie Mac before May 31st, of 2009. If your mortgage isn’t backed by Fannie Mae or Freddie Mac HARP simply isn’t an option for you.

Rumors have it that HARP 3.0 would supposedly eliminate the Home Affordable Refinance Program Fannie Mae and Freddie Mac Requirement; however, proposed legislation found in the Responsible Homeowner Act of 2012 still requires that your home mortgage is backed by Fannie Mae or Freddie Mac.

What’s a responsible homeowner to do? Keep making your payments on time and shop for lenders that don’t enforce their own loan-to-value requirements for HARP. Community based credit unions are a good starting point for underwater mortgage help.