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January 27th, 2011

Underwater after a bankruptcy 3.5 years ago. Can I refinance?



Ask the ExpertOur “Ask the Expert” section on HSH.com is the perfect place for you to get your mortgage questions answered by our resident expert Keith Gumbinger. Here’s the latest question we’ve received:

Question: Can I find someone to refinance? We filed bankruptcy 3.5 years ago after a failed business. We were never late and never missed a payment on our mortgages (1st & 2nd) or our cars and did not include these in the filing. Since the filing, we have paid off one of the two cars. We have an adjustable rate first mortgage that is set to adjust in 2013 – currently it is at about 6 percent. The second mortgage is fixed at 9.9 percent. Looking at both mortgages, we are slightly underwater. Since the filing we have not taken out any credit at all. Is there any hope of re-financing?

Answer: The bad news is that the combination of your issues – being underwater and having a fairly recent bankruptcy – means finding new financing will be next to impossible. Fannie and Freddie require “credit recovery” periods after bankruptcy of up to four years, and being underwater leaves fewer options outside of a Home Affordable Refinance — available only if your loan is owned by Fannie or Freddie in the first place. You can check with your existing first mortgage lender to see if help might be available, but it does seem unlikely at the present moment.

Have a mortgage-related question? You can either visit our “Ask the Expert” section or leave us a comment below.

What about a modification? Will a bankruptcy filing kill your chances at a loan mod?

If you’re in serious financial trouble, you may be considering bankruptcy; and if you have a mortgage, you’re probably also trying for a loan modification. But will filing for bankruptcy protection prevent you from getting your mortgage modification? It depends.

You may have even given up hope of solving your financial troubles, but fear not: Understanding the guidelines and pitfalls of applying for a mortgage modification and filing for bankruptcy will help to ensure your greatest chance for successfully re-casting your obligations.

The official word on bankruptcy and loan mods

HAMP administration guidelines state that you can get a mortgage modification if you file for bankruptcy protection. “A borrower actively involved in a bankruptcy proceeding is eligible at the servicer’s discretion; however, any modification under HAMP entered into while the borrower is in bankruptcy proceedings must be approved by the bankruptcy court before the borrower is allowed to exit the trial modification period and become permanent.”

Click here to learn more about how a bankruptcy filing will affect a loan mod.

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3 Responses to “Underwater after a bankruptcy 3.5 years ago. Can I refinance?”

  1. Tweets that mention Underwater after a bankruptcy 3.5 years ago. Can I refinance? | HSH Financial News Blog -- Topsy.com Says: January 27th, 2011 at 4:53 pm

    [...] This post was mentioned on Twitter by HSH Associates, Boise Home Loans and boise mortgage, AvoidBankrupt. AvoidBankrupt said: Underwater after a bankruptcy 3.5 years ago. Can I refinance? http://bit.ly/fI2mRm [...]

  2. George E. Bourguignon, Jr. Says: January 27th, 2011 at 10:58 pm

    Tough situation. Best to see a local experienced bankruptcy attorney and be willing to make sacrifices to put a plan in place to address the situation.

  3. Wheatfield Homes, LLC Has Launched a New Program to Buy “Underwater” Houses « the LIME Magazine Says: January 28th, 2011 at 8:23 pm

    [...] Underwater after a bankruptcy 3.5 years ago. Can I refinance? (hsh.com) [...]

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HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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