Undoubtedly you’ve heard the dreaded term before: “underwater home,” a mortgage with a balance higher than the value of the property that secures it.
You’ve heard the options people suggest: grit and bear it out, get a modification, short sell the house, or offer the deed in lieu of foreclosure.
There’s one option people often overlook: refinancing the mortgage.
Refinancing is simple conceptually: the homeowner is borrowing a new loan on better terms to pay off a previous loan on less favorable terms while still using the house as a security. Yet the common belief among Las Vegas homeowners is, “Why would the bank agree to this?” There are two reasons.
- The bank is owned by the government or the government already guarantees your mortgage. If your mortgage happens to belong to either Fannie Mae or Freddie Mac, you may be eligible for refinancing via the Home Affordable Refinance Program (HARP), which is not to be confused with the Home Affordable Modification Program (HAMP). HARP loans are similar to most other kinds of mortgages except they are fixed-rate instead of adjustable, and they don’t require mortgage insurance when equity in the home is below 20%. Congress originally scheduled HARP to terminate in 2011, but the government granted it an extension through June 2012. If yours is a Fannie or Freddie loan, a HARP mortgage is a serious option worth considering. You don’t even need to use your current lender.
- The bank is afraid you’ll stop paying. Refinancing benefits the bank because it doesn’t have to worry as much about you defaulting on your loan. Often they will tell homeowners they are ineligible for refinancing precisely because people are paying them on time. Some homeowners have found that banks are much more willing to negotiate if they tell the bank that they’ll stop paying. Remember banks want homeowners to pay them more than anything else. Offering it a deed in lieu of foreclosure, strategically defaulting, or suffering a foreclosure means that it ends up owning a house that has lost much of its value. Banks can’t pay their depositors with houses, especially when home values are still higher than their trend. Consequently, threatening not to pay the bank may work in your favor.
It’s important for you to know all your options for dealing with your underwater home, including seeing how filing bankruptcy can help.
For more questions about bankruptcy in Las Vegas, please feel free to contact an experienced Haines & Krieger Las Vegas bankruptcy attorney at 702-880-5554 for a free initial consultation.