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