Refinancing underwater mortgages in Nevada

[Note: The following piece is submitted to this blog by Jonah Trenton of Refinance Mortgage Rates. Jonah enjoys the Reno Realty Blog and would like to share the information below with the blog’s readers.]

The Reno-Sparks housing market is projected to decline another 5.5 percent over the next year. While this kind of decline would have been cause for alarm in the same market a decade ago, it’s actually a vast improvement over the double-digit losses experienced by homeowners in the past three or four years.

One of the Five Weakest Markets in the U.S.

With more than half the mortgages, nearly 53,000 properties, in the area underwater, situations in which the owners owe more than their homes are worth, the slower rate of decline isn’t a cause for rejoicing. What it really means is that the Reno-Sparks area is experiencing more default and foreclosure activity, not a budding rebound in the housing market.

To Refinance or Not to Refinance

For homeowners struggling to avoid losing their homes, a rescue seems an unlikely event. However, a no closing cost refinance might provide a viable alternative to default or foreclosure, but homeowners need to take action before they’re in default or are able get caught up on overdue payments before applying.

An alternative to a no closing cost refinance is negotiating a repayment plan with the lender. Delinquent payments are spread over a period of time, typically 12 months. These past-due amounts are made in addition to current monthly mortgage payments. This is a very challenging solution for people who are already struggling to hold on to their homes with diminished paychecks.

Modification to an existing loan is another strategy, but it requires careful planning and forethought on the part of the borrower. Past due interest and escrow is paid against the loan principal, reducing the amount owed. These benefits are offset by interest rate adjustments, principal forgiveness and term extensions, representing permanent changes to the terms of the original contract. Extra loan fees as usually levied, but the mortgage is immediately brought up to date.

There are several more possible tactics to use in the face of impending foreclosure. None offers a perfect solution. Economic experts agree that only a growth in wages and employment will cure what ails the Reno-Sparks market. Until that time comes, stopgap measures will have to suffice.

HARP as an Alternative

The Home Affordable Refinance Program (HARP) offers a more functional solution to underwater mortgages. A federal government initiative, HARP was designed to help homeowners refinance a more affordable mortgage when they are unable to qualify for the traditional programs mentioned above.

A HARP loan is essentially a new mortgage. Participating homeowners need to complete a new loan application and undergo the underwriting process again. Loan refinance fees apply.

There are a few important stipulations attached to HARP, though. For example, homeowners must be current on their mortgage payments and have a good overall payment record for the past 12 months. Their mortgages must be held by Freddie Mac or Sallie Mae as either original lenders or as acquiring lenders on or before May 31, 2009. Additionally, mortgages must have a loan-to-value, LTV, greater than 80 percent.

Homeowners interested in HARP as an alternative to regular no closing cost refinancing should contact their lenders about their participation in the federal program.

Contributed by RefinanceMortgageRates.org