Help With Refinancing Underwater Mortgage

When a lender fails to respond to your requests to refinance an underwater mortgage, you might have to file a complaint with the OCC.

Q: We purchased the home in year 2006. We only put down 5 percent and have a first mortgage at 7 percent and a second at over 8 percent.

Despite our repeated attempts to contact our lender to get help to reduce the interest rate and make our mortgage easier to afford and they are refusing to do the same because our mortgage is not guaranteed by Fannie Mae or Freddie Mac. Our loan is underwater by about 15 percent.

Is there any help for those of us who got low-down payment loans and then had those loans sold to investors other than Fannie Mae and Freddie Mac.

A: The fortunate thing for you is that you are only underwater by about 15 percent. Some borrowers are underwater by up to 80 percent. That means that they may have purchased a property for $200,000 and now the property is worth around $40,000.

Most mortgage lenders provide borrowers with mortgage loans only to have those loans sold to Fannie Mae or Freddie Mac. The servicing rights to your loan might be retained by the original bank or sold to someone else. By selling loans to Fannie or Freddie, the retail lending institution gets more money to give to other home buyers or homeowners refinancing their homes.

There are some institutions that wind up keeping their loans and don’t sell them off, or in some cases sell them to a special pool of investors that may be a hedge fund or a group owned by a private equity company. It would seem that you obtained your financing for your first and second loans from one of those types of institution.

Generally, your bank is under no financial obligation to refinance your loan or even modify its terms. When you took out the loan, the bank agreed to give you the money and you agreed to repay that money at a certain interest rate.

If you sold or refinanced your home, you would pay off the lender with the proceeds from the sale or from the refinancing. In your case however, if you sell or refinance, you need to come to the closing with money. If you have that money in the bank, you might find a different lender willing to refinance your loan to pay off the first lender and reduce your interest rate substantially.

As of this week, 30-year interest rates on a loan under $417,000 are around 4 percent. If you have that money in the bank, you might want to sit down with a mortgage broker and a mortgage lender to see what options you have.

If you don’t have the kind of cash you’ll need to refinance your loan, you might want to see who else you can talk to at your lender that might have more say over whether they would be willing on refinancing your loans.

If you can’t find anyone willing to work with you at your lender’s office, you can file a complaint at the Office of the Comptroller of the Currency at www.HelpWithMyBank.gov. The OCC is willing to hear from consumers on their issues and in some cases attempt to contact the lending institution with the hope that the lending institution ends up working with the borrower.


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