Help is available when you are underwater

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Ask a Lender
November 15, 2016 | Updated January 4, 2018


Key Points

Programs available to underwater homeowners

  • Home Affordability Refinance Program (HARP)
  • Home Affordable Modification Program (HAMP)
  • Federal Housing Administration Short Refinance program

One of the primary reasons many people buy a house is because of the investment opportunity real estate presents. Instead of renting, and having that money go to a landlord or management company, homeowners will hopefully see returns on their mortgage payments as their house gains value and, eventually, could be sold for a tidy profit.

That's not always the case, though. For a variety of reasons, houses sometimes lose value, and suddenly homeowners find themselves losing the equity they hoped to gain. And although no quick fix can change the housing market, there are steps these homeowners can take to at least make their mortgage payments more manageable until the tides turn.

Equity explained

Equity is the difference between how much your property is worth and how much you owe on that property. When it comes to a house, equity means the difference between the appraised value of the home and the amount remaining on your mortgage or mortgages.

Much of the time, houses gain equity because values tend to rise over time and people gradually pay off their mortgages. If you owe more on your house than it is currently worth, however, then you have negative equity, also known as being underwater on your mortgage. This was especially prevalent after the Great Recession, given that many people bought their homes shortly before the housing crisis of the late 2000s, only to see home values plummet in the years afterward.

Know your options

It can be difficult for underwater borrowers to refinance their mortgages, because lenders often require homeowners to have a certain amount of equity before considering such a move. 

It can be difficult for underwater borrowers to refinance their mortgages, because lenders often require homeowners to have a certain amount of equity before considering such a move.

In the wake of the housing crisis, many government programs were created to help homeowners with underwater mortgages. But as the economy and the housing market have recovered, many of these programs were discontinued. For example, both the Home Affordable Modification Program (HAMP) and the Federal Housing Administration’s Short Refinance program were discontinued at the end of 2016.

One program that is still available to homeowners dealing with an underwater mortgage is the Home Affordable Refinance Program (HARP).

Created by the Federal Housing Finance Agency, HARP is a refinance program designed for homeowners with little, zero or negative equity. It helps the borrower to achieve a lower interest rate, modify the term on their mortgage, and/or convert their loan from an adjustable to a fixed interest rate. It is only available for borrowers who closed on their mortgage before May 31, 2009, are current with their payments and have had their loans purchased by Fannie Mae or Freddie Mac.

To qualify for the program, the owners must occupy the home in question as their primary residence. There has been talk about a new iteration of HARP, dubbed Harp 3.0, that would expand eligibility for the program to more homeowners. There is no indication the changes will be implemented any time soon, however. The current iteration of HARP is available through Dec. 31, 2018.

If you think HARP might be an option for you, check with your lender. Also ask your lender if they have other options available to help you.

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