Your Underwater Mortgage #2: Staying in the Home

In the current economic climate, an astounding number of Americans are struggling with underwater mortgages, where the borrower owes more on their mortgage than the property is worth. In fact, CoreLogic just released a report demonstrating that, in the United States, 10.9 million residential properties with a mortgage are currently underwater.

If you have decided to try to brave the storm and stay in the distressed property, there are a few options available. However, it is important to ensure that you have a total understanding of what this action may mean and are certain that you are prepared to shoulder the burden.

1. Refinancing the Mortgage

If you are currently under negative equity, a traditional refinance may not be an option. However, refinancing can be an excellent means of making a difficult mortgage payment schedule more bearable. For those with loans owned by the government-run Fannie Mae or Freddie Mac, who have not yet been more than 30 days late on a payment in the past year, you may qualify for a refinancing agreement under the Home Affordable Refinance Program (HARP). If your loan is not controlled by one of these entities, it may be possible to work directly with your lender to manage a refinancing agreement. While refinancing carries the benefit of not having any effect on your credit score, it is still possible to lose the house if you cannot make the mortgage payments determined by the refinancing agreement.

2. Mortgage Loan Modification

Mortgage loan modifications operate differently from a refinancing agreement. Instead of deciding on a new amount to be owed each month, a mortgage modification involves an agreement by the lender to lower the interest rate and payment, either temporarily or permanently. It may be possible to qualify for a mortgage loan modification under the Home Affordable Modification Program (HAMP), if the mortgage payment composes 31 percent or more of your monthly pre-tax income, and you have suffered a qualifying financial hardship. Such hardships would generally include a significant increase in medical expenses, unemployment, or a diminished income.