Pam Marron Home Lending

Restructured Refinance That Includes Govt 2nd Could Help Remaining 4 MILLION+ Still Underwater

What if there was a way…

Restructured Refinance with Government 2nd Loan Could Help 4 MILLION+ Negative Equity Homeowners and Nearly 1 MILLION with Resetting Interest Only Home Equity Lines of Credit

by Pam Marron | National Mortgage Professional Magazine | January 2018

Over 4 million homeowners still have mortgages where negative equity is over 125%[1]. Nearly 1 million of these homeowners have home equity lines of credit (HELOC) attached that are preventing a refinance of the first mortgage.

Restructuring these loans for a new conventional mortgage is possible by reducing the first loan to 80% LTV and attaching new fully amortizing secondary financing up to a 95% combined loan to value (CLTV). But it is not enough if the client can’t get funds to cover a needed payoff above 95% CLTV.

Both the Fannie Mae DU Refi Plus and the Freddie Mac Relief Refinance Home Affordable Refinance Programs (HARP) allow government entity funds to replace secondary financing with no maximum CLTV. Using government entity funds, like those in the Hardest Hit Fund (HHF) program, could provide two benefits by enabling negative equity homeowners to both refinance a first mortgage where no refinance has been possible and replace dangerous resetting interest only HELOC’s where an increase in payment can be as high as 400+ percent.

Fannie Mae and Freddie Mac have HARP financing for existing negative equity conventional mortgages. Portfolio conventional mortgages with negative equity have never had a refinance available. Unless the loan to value is below maximum caps needed for refinancing with other loan types, most homeowners with portfolio conventional mortgages have been unable to refinance. And even when the first mortgage is below the maximum LTV, attached secondary financing that exceeds the combined loan to value requirement also blocks a refinance.

Prior to the housing crash, attaching hybrid first and secondary financing was common, and secondary loans were often interest-only HELOC’s. As of Sept. 30, 2017, there were nearly 1 million HELOC’s in the U.S. where the combined loan to value of the 1st and secondary financing is above 101%[2].

Whether a 1st mortgage or a HELOC, interest-only loans reset to a fully amortized payment on a reset date, typically at 7 to 10 years. Upon a reset, the remaining loan balance is spread over the remaining term of the initial loan. Here’s an example of how dangerous this is: on a 15 year HELOC for $50,000, if lower interest only payments are all that has been paid during the first 10 years with no extra funds applied to the principal, the full $50,000 balance can be amortized over the remaining five years left on the HELOC term! And when the HELOC has negative equity lenders are reluctant to refinance, but they will modify the loan if a hardship exists and often only after the homeowner goes delinquent on the payment.

Government entity Hardest Hit Funds were released by the U.S. Treasury in 2010 and provided 18 states and the District of Columbia with assistance for homeowners trying to stay put in their homes after the housing crisis[3]. Unique criteria can be applied with these funds and in Florida on the Principal Reduction program, mortgage delinquency was not required to receive funds. In fact, the homeowner had to be current!

Additionally, criteria for a lower rate on a new secondary replacement loan could be offered when the currently paying negative equity homeowner opts for a shorter loan term, thereby escalating equity. Best of all, the homeowner could stay current, keep credit in good shape and pay this loan back!

Only a Government Entity 2nd Loan is Needed…

Government entity secondary financing to replace existing secondary loans could help nearly 1 million negative equity homeowners who have resetting interest only HELOC’s.

If government entity secondary financing also covers any loan amount needed to get the 1st mortgage below required maximum ltv’s needed for a 1st mortgage refinance, over 4 million negative equity homeowners could refinance with any lender at today’s historically low interest rates.

Please go to for more information.

Stay tuned.

[1] Provided by ATTOM Data Solutions: end of Q3 2017

[2] Provided by ATTOM Data Solutions: end of Q3 2017

[3] Hardest Hit Fund/Program Purpose and Overview​: