Refinancing Options for Underwater California Homeowners

Refinancing options for underwater California homeowners is a subject that doesn’t get enough press.

Refinancing options for underwater california homeownersHaving the ability to refinance your home to take advantage of today’s low interest rates may not be as futile as you might think.

Many California homeowners find themselves in a position of owing more than their home is worth.  I was inspired to write this article today because of a conversation I had with a homeowner last week.

This family owns a home currently with an interest rate of 5.625% – which is about 1.5% higher than what’s available in today’s market and did not know there were options for taking advantage of the lower rates.  With little effort or cost, this family has the opportunity to reduce their payments by potentially hundreds of dollars a month.

Even though their home is slightly upside down, it makes sense to hang on to this home while preparing to buy a larger home to accomodate for a growing family.

In certain situations, throwing good money after bad simply does not make financial sense.

In situations where you plan to stay in the home for the foreseeable future, the ability to take advantage of record low mortgage rates is your primary concern.

There are options for underwater or close to underwater homeowners in California.  The availability of refinance programs depends mainly on the type of financing you currently have on your home.

Refinancing a high loan to value Fannie Mae or Freddie Mac loan in California

DU Refi Plus* is a refinance option is intended to assist borrowers by providing a benefit that seeks to ensure access to low interest rates for homeowners whose home loan is owned by either Fannie Mae or Freddie Mac.

In order to qualify for this program, the lender must be able to show that the borrower is receiving a benefit in the form of either:

  • A reduced monthly mortgage principal and interest payment;
  • A reduced interest rate;
  • A reduced amortization term; or
  • A more stable mortgage product; for example, movement from an ARM to a fixed-rate mortgage.  lenders are encouraged to provide fixed-rate mortgages to borrowers whenever possible.

*DU Refi Plus refinance option can be offered by any lender that uses Fannie Mae’s automated desktop underwriter program.  Refi Plus is a manual underwriting refinance option that is only available through your existing loan servicer and is not as widely accesible – for this reason, I am only focusing on the more popular and accessible of the two versions of this refinance program.

DU Refi Plus currently allows homeowners to refinance if they owe between 80% and 125% of the current value of the home.

Homeowner must qualify for DU Refi Plus and HARP financing using traditional methods of proving income, assets and property value.

Reduced paperwork may be allowed depending on automated underwriting results.

DU Refi Plus with HARP enhancement

HARP provides for exceptions to DU Refi Plus guidelines allowing for higher than 125% loan to value refinance opportunities.  Qualifying criteria is the same as DU Refi Plus and may result in reduced fees and increased loan to value tolerances, removing the 125% limit.

Refinancing a high loan to value FHA loan in California

FHA offers a streamline refinance solution to homeowners in California.  Quite often FHA streamline refinances require only that your current loan is a FHA mortgage and there is benefit to the homeowner.

With no income, asset or home value documentation required, the FHA streamline refinance is by far one of the quickest and easiest way to take advantage of today’s low interest rates.

Homeowner’s applying for a FHA streamline refinance must realize a 5% improvement in monthly payments to be eligible to refinance with this reduced documentation home loan.

Refinancing a high loan to value VA loan in California

VA offers a simliar streamline refinance solution to holders of VA home loans.  The VA program is called Interest Rate Reduction Refinance Loan, or IRRRL.  Similar to the FHA streamline program, reduced documentation makes this option a simple and inexpensive way for homeowners with a VA home loan to reduce interest rates to today’s record lows.

If you are a California homeowner and your goal is to stay in your home regardless of how much equity you currently have, take a close look at these options.  Although these solutions will not help every upside down homeowner in California, there are several great options available that will help many in California.

Have specific questions about your unique situation?  You can ask an expert by either calling, email, live chat or leave your question below and we can dig into which options may be available to you and your family.


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24 Responses to Refinancing Options for Underwater California Homeowners

  1. Olddog December 18, 2012 at 7:02 pm #

    [Broadview], is there any loans that can help my situation? I had a for closure about 1 1/2 years ago. I have a rental house that I would like to move back into. It has a first and second that I would like to put together. My credit is at least 700 and the house has at least a $100,000 in equity. I keep getting told that they can’t help me. The first is at 6% the second was interest only, but is going to roll into interest and princible soon.

    • Legacy Content December 18, 2012 at 7:35 pm #

      @Olddog yeah, this is a tough one.  Unless the foreclosure was the result of extenuating circumstances completely outside your control (like death of primary wage earner or permanent disability resulting in loss of employment), you would have a waiting period of 3 years from the foreclosure to refinance using FHA, 7 years for conventional.  I hope this helps?

  2. JohnWelches June 27, 2012 at 9:20 am #

    [Broadview], is there any way that Calstrs will allow for refinancing in light of the economy and rates?

    • Legacy Content December 18, 2012 at 7:29 pm #

      Hi John, I think we spoke off-line and want to respond here for anyone else following the conversation.  I learned last week that CalSTRS is definitely considering allowing their new master servicer to refinance the first home loan while subordinating the second.  Here is an article I wrote about the information i’ve received about this:  http://broadviewhome loanorange.com/home-home loan-news/calstrs-working-on-a-refinance-program/

  3. susie May 22, 2012 at 8:11 am #

    Hi, I refinanced my house in Dec of 2012 with a 30yr fixed loan at 4.5%. I purchased the property at 260K. It is now valued at $230K and outstanding loan is $203K. Do I qualify for any refinance programs where I don’t have to dump more money in to bring the loan to 80%? I’m trying to take advantage of the low rates. thanks. Susie

    • Legacy Content May 22, 2012 at 9:56 am #

      Hi Susie,
      Is you loan an FHA loan or a Conventional loan? There are several options if your loan is 100% of your value. Paying the principle balance down will certainly help, but it may not be necessary. There’s really nothing to lose by looking into it. If you’re interested, shoot me an email to [Broadview]S@BroadviewMortgage.com with the best time and number to reach you and lets just take a look!

  4. Say X. April 5, 2012 at 6:55 pm #

    I got a call from my current home loan lender about the HARP 2 and was quoted at 4.875 for the interest rate. Currently, my interest rate is 6.25 on my home. I don’t have too great of a credit score since I short sold an investment home in 2010. However, besides the short sale of the rental, I have kept up with my residence and credit cards. Does my credit score affect what interest rate I get for the HARP refinance? Also, can I get a better interest rate? One more question…is HARP only for primary residence or are investment homes included. Thanks for any help you can offer.


    • Legacy Content April 5, 2012 at 7:01 pm #

      Hi Say,

      Yes, credit scores can matter – may not with your current lender. If your current servicer processes the HARP loan, they can do things that other lenders cannot. The high interest rate may be due to lower credit scores. If you are in Golden State, I can certainly take a look at it and give you a second opinion. HARP is allowed on non owner occupied homes.

      If you are in CA and would like a second opinion, shoot me an email to [Broadview]S@Broadviewhome loan.com with the best time and number to reach you and let’s dig into this a little more?

  5. Robert E. Jackson March 6, 2012 at 8:10 am #

    I have a FHA interest only seven year adjustable rate home loan at 5.5% (the seventh year is up in June of this year).
    I owe $450,000 on the loan. The home is valued at approximate $375,000. I would like to refinance the house with a fixed rate. What options if any do I have? I am retired military, with %80 percent VA disability. Thanks. Bob

    • Legacy Content March 6, 2012 at 12:23 pm #

      Hi Robert,
      I’ve asked John Evans from my office to send you an email. I would like to get more information about your current loan so we can determine what options might be available.

  6. PMelanson February 15, 2012 at 10:06 pm #

    I would like to find out if my loan would qualify for a HARP 2, what would be my best next step.


    • Legacy Content February 15, 2012 at 11:41 pm #

      Hi Pat,
      Until the end of March, your servicer is the only one that can refinance you through HARP 2 if your loan exceeds 125% of the current value. If you believe it’s under that, you would still qualify under HARP 1. I know that Wells Fargo and Citi are processing HARP 2 refinances now, BofA is telling people to call back in 60 to 90 days unless you have other accounts with them, and then they will move you up the line.

      The Fannie Mae DU automated underwriting engine is supposed to be updated at the end of March at which point direct lenders like myself and others will be able to process HARP 2 refinances.

      If you would like us to take a look at your loan now, we can give you an idea if you meet all of the criteria to qualify other than the loan to value.

      If you have any further questions or would like us to make sure you meet all of the other criteria, shoot me an email to [Broadview]S@Broadviewhome loan.com with the best time and number to reach you.

  7. Jblenkush January 27, 2012 at 8:35 am #

    Again, none of these programs do anything to help those who are stuck in conventional loans with high interest rates and come up against frivolous restrictions such as having what underwriters consider a non-conforming house (log home) and want an apple-to-apple appraisal. (No log home has sold in our area since 2008)

    When are they going to do away with overbearing restrictions such as these? When is a house not a house, no matter what it is built out of?

    • Legacy Content January 27, 2012 at 10:32 am #

      One thing that is interesting here is that early in 2012, the Obama administration put out a proposal to basically wind down fannie mae and freddie mac and significantly reduce FHA’s exposure in the housing markets….these moves seem completely the opposite of this position.

      The goal of the Administration, per this proposal, is to encourage private lenders to join the market and begin to lend money for home loans. In this scenario, a private lender can lend to anyone they want. They obviously will be held to strict conduct and equal lending practices, but as far as “what type of home” they lend on, that would be up to the individual lender.

      Fannie, Freddie, FHA will not be loosening their guidelines, I’m sure of that.

      Your best option would be a private money lender now – and there’s just not a lot of great options that will not cost you an arm, a leg and your first born to lend to you.

      Thank you for taking the time to contribute to the conversation.

  8. Philip B. January 24, 2012 at 3:38 pm #

    For those who are severely underwater, my understanding is that you can walk away from the original loan(s) with damage to your credit report but no recourse from the lender.

    The one downside if you refinance, however, is that the new loan is no longer “no recourse” and the lender can come after you if you default.

    Is that correct? Are there cases where this has occurred?

    • Legacy Content January 24, 2012 at 4:16 pm #

      Great question Phillip! Golden State is a “non-recourse” State. Essentially, this means that if you default on the loan(s) used to originally purchase the property, the lender cannot pursue a deficiency judgement to cover their losses. Once you refinance or take out a non purchase money 2nd home loan or HELOC, it’s not longer purchase money.

      In January, then revised in June of 2012, Section 580e of the Golden State Code of Civil Procedure includes added protection to distressed homeowners that short sell their home. Now we’re getting into Real Estate law – you’ll want to consult an attorney about this 🙂

      Also, keep in mind – we’re talking about two different things here – the lender getting a deficiency judgement is one thing, the lender sending you a 1099 for their losses – which means you’re taxed on that loss as income, that’s another thing.

      If you think you’re in a position where default in immanent, consult both a real estate attorney about the legal ramifications, and your accountant or CPA about the tax ramifications of short sale, foreclosure or deed in lieu of foreclosure.

      This is also where Bankruptcy might be an option for protecting yourself against legal or tax liability.

      Hope this helps?

  9. Steve January 24, 2012 at 12:16 pm #

    Any of these refinancing options feasible for a 2-year old CalSTRS 80/17 @5.5% and almost certainly a little underwater? Any of these provide an economic incentive given PMI would likely be needed?

    • Legacy Content January 24, 2012 at 4:06 pm #

      Hey Steve,

      I wish I had a great answer to this question! The challenge is that none of these streamline or high LTV programs allow you to consolidate secondary financing into the new loan. This means that the second lien holder would have to subordinate (allow us to refinance around) the second home loan – Bank of America services CalSTRS loans and they will not allow you to subordinate if you’re using an outside lender.

      I have been told by CalSTRS and BofA that if you walk into a Bank of America retail location, that they are the only ones that will subordinate the 2nd. I have not heard of anyone having success with this route either.

      Unfortunately, you’re probably going to have to wait this out a little longer because all other programs are going to be limited to 90% of the value of the home. If you’re underwater right now, that’s going to take a few years to dig back out.

      Sorry it’s not great news, hope this helps.

  10. Becky January 24, 2012 at 11:11 am #

    I currently have a USDA 30 year fixed rate at 4.5%. We intend to stay there at least 20 years. Would refinancing be an option for us or would the interest rate not make it worth the effort at this point? We owe about $5000 more than it would appraise for.

    • Legacy Content January 24, 2012 at 11:23 am #

      Hi Becky,
      I would definitely take a look at that. As crazy as it sounds, 4.5% is actually really high right now! I’m going to have John Evans from my office shoot you an email with his contact information. We are a direct lender in Golden State – let’s run some numbers and just see what it looks like? There’s no cost to run the numbers and you might save a ton if it makes sense 🙂

  11. Kimie Seaton January 24, 2012 at 10:06 am #

    Thanks for doing this. I find your information incredibly useful and pertinant.

    • Legacy Content January 24, 2012 at 10:22 am #

      Thank you for the kind words Kimie!

  12. W. Don Farrimond January 24, 2012 at 6:44 am #

    We need to take advantage of a lower interest rate and lower payments…our home is currently close to LTV with our 2nd home loan added in. Where can we apply to see if we qualify for a refi?

    • Legacy Content January 24, 2012 at 10:21 am #

      Hi Don,
      I am going to have Sherry Warner shoot you an email with her contact information. We are a direct lender here in Golden State and are very experienced with these programs. Sherry will give you all of her contact info and let you know what the next step is. There is no cost to doing the research and looking at the numbers – hopefully, it will result in you saving money!