Distressed Homeowners Have Alternatives to Foreclosure or 'Short' Sale

In Minnetonka alone, the number of homes actively listed for sale as 'short' (where the mortgage owed is more than the property's current market value) is up almost 22 percent from this time last year.  But if you're an underwater owner without a bonafide hardship (such as a job loss), there are other methods to help resolve your dilemma than opting for a short sale or voluntary foreclosure.  Because short sales and foreclosures ultimately hurt us all and we need to stem the tide and move towards a resolution to correct the housing market and our economy.  Here's one alternative. 

If you bought a home in 2008 or earlier, chances are good that your mortgage rate is 6% or higher. It was also near the peak of the pricing bubble, so you’re probably 'under water' now in terms of the home's resale value. The good news is HARP ( Home Affordable Refinance Program).  

Recent improvements to the HARP program allow homeowners who are current on their mortgage payments to refinance up to 125% of the current mortgage. The higher loan-to-value refinancing allows more homeowners to strengthen their finances by taking advantage of today's lower mortgage rates.  The program also encourages such borrowers to combine a lower mortgage rate with a faster amortization schedule, which enables owners to get ‘above water’ on their mortgages more quickly. 

Let’s say that your monthly principal and interest payment on your current mortgage is $1,857, and by refinancing into a 30-year mortgage, you reduce your payment by $200, to $1,657.  Assuming you can get an interest rate reduction of 0.125% (an eighth of a point) by committing to a monthly payment of $1,776 – which is still $81 less than your current payment – you will pay off your mortgage 5 years sooner and pay about $63,000 less in interest over the life of the loan.

Or you could get a 20-year mortgage with a higher monthly payment to pay off your mortgage roughly 10 years sooner and save $116,000 in interest over the life of the loan. With these expanded refinance opportunities, qualified borrowers whose mortgages are currently owned or guaranteed by Fannie Mae and Freddie Mac will be allowed to refinance those loans according to the terms of HARP, established earlier this year. 

This program could assist many homeowners who otherwise would have difficulty refinancing due to declining house prices. You can obtain more details at http://www.makinghomeaffordable.gov.