Underwater Mortgages and Possible Changes to HARP


I have been helping a company develop a couple underwater mortgage calculators and in discussion with them they mentioned that nearly 1/4 of all homeowners currently hold an underwater mortgage. I found that difficult to believe but he assured me it was true, and today in the news I read an article that confirmed it. However, that statistic is misleading since most of the underwater loans are in just a few states, like California, Florida, Nevada, Arizona and Michigan. In those states the percentage of people with negative equity is staggering, about 60% in Nevada, nearly 50% in Arizona and over a third in Michigan and Florida. I found this cool graph to figure out where Missouri stood and it is much more typical, where about 15% of homeowners are underwater (about 1 in 6.) That is still not great news, but nothing like the numbers from the hardest hit states.

The federal refinancing plan set up to help people with their problematic loans has been far from a success, with less than 900,000 homeowners using the Home Affordable Refinancing Program (HARP) where they were hoping to help millions. So now they want to change the program, removing the maximum 125% LTV limit on qualifying loans and lowering the cost to refinance. (Once anything is approved I am modifying my online calculator!) That is a great thing to try to help those with underwater loans, but what about the 85% of us in most of the other states who have loans well under the value of our homes? It is great they are making refinancing cheaper for those people most in trouble, but why not lower refinancing fees for everybody? I had someone e-mail me a question about a loan modification and he mentioned his total closing costs to modify and refinance his loan would be about $800, where I know it would cost me nearly $2,000 to refinance my tiny loan which does not qualify to be "modified" since it is well under the value of our home and our monthly payment is well within our means. In any case I hope they make some changes to the program so that more people can use it, or what was the point of it at all?

Interest rates have taken a slight uptick in the past couple of weeks so anyone thinking about refinancing will have to decide whether to wait to see if any of these modifications to the plan get approved or try to do something now before rates get any higher. For many folks the rates do not make a difference since they are so far underwater they do not qualify for anything, so they desperately need the 125% LTV criteria to be lifted. Let's see what Washington can do to try to help out the underwater mortgage situation.

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