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Underwater with ARM — what now?

By Holden Lewis ·
Tuesday, July 27, 2010
Posted: 4 pm ET

I'm looking to interview people who have ARMs and would like to refinance -- but they're underwater and can't refi. Does that describe you? Are you willing to be interviewed and quoted by name and city? Then e-mail me.

By the way, I don't know the solution to this issue of having an ARM and being underwater and wanting to refi. I talked to a mortgage lender today who said those borrowers are stuck, unless they can get a Home Affordable Refinance Plan, or HARP, refi. He said to look on the bright side: Lots of people with 5/1 ARMs are seeing their rates adjust downward at that five-year loan reset. If any loan officers want to talk to me about it, click on that e-mail link above.

On a related matter, a reader named Cheryl responds to my article about refinance roadblocks. She writes:

Being underwater is not the reason I cannot refinance. I have perfect credit, not underwater, but the reason I cannot refinance is because I have an equity line of credit. Since I negotiated such an excellent rate for that line (2.125%), if I refinance my first, the bank holding the second wants to jack up the rate when they have to subordinate it. So, it would not make sense to lower my main mortgage and jack up the rate on the second.

I wish there was a way around this. I feel it is completely unfair. I imagine there are lots of people in my shoes.

I don't see how the bank holding the second has a right to modify the rate just because I refinance my first mortgage.

Any ideas?

No, I don't have any ideas. From the borrower's perspective, I think this is an insoluble problem. I wish I could say different.

Actually, after writing the above paragraph I did get an idea. Try refinancing with the same lender that has the line of credit. You might be able to talk them into resubordinating since it will be the same lender.

Yes, it's unfair, and I wouldn't be surprised if the Consumer Finance Protection Bureau addresses it someday. But the CFPB won't be up and running for at least six months, and resubordination reform won't be high on its packed agenda.

Are you going to follow me on Twitter @HoldenL or are you going to remain in the dark? Your choice.

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Jim Brown
August 11, 2010 at 7:01 am

When I hear of all these programs the first thing I would suggest is if you had equity and no longer have that same amount of equity you should refinance with an FHA loan up to 95% of current equity NOW. Before values decline further. If you don't need the money invest it or pay off some credit cards. Best reason to grab the money is for school tuition. Many clients need money for kids school and can't get it. So if you are working, have some equity and most important a job, you should move forward.

July 28, 2010 at 8:07 pm

IT would have been nice to have these types of programs back in 2007/2008. We lived in Michigan & after we built a new house to the tune of $400K/Heloc to finsh the basement off at $100K it appraised at $715K. then the bottom dropped out & we were approved for a shortsale in 2008 for $300K. Now the Bank holding the HELOC is sending notices to pay up!
Anyone else in this boat with out a paddle?

carlos a. gutierrez
July 27, 2010 at 10:18 pm

i read this article about 7 reasons why you should refinance...listen i have excellent credit and i have been paying ahead on my mortgage...currently the mortgage companies-amerisave does not offer financing or refinancing on investment properties which are condos- at least in ny, owb-indymac- wants so much information and so much supporting and demanding finance support that it is likely they don't really want to do it, i called td bank- they never called me is ridiculous to get a refinance done these days..the only real thing out there is a home purchase- and that too requires some real work...i almost think the future of mortgages- is one has to hire a lawyer and a cpa to deal with the banks...equity now is the only organization that actually offered to do the paperwork- the only problem is their closing costs start a bit higher than the rest...want my advice...don't refinance thru the banks...go to a local credit union or even a local union and borrow the money from them to pay off your mortgage or heloc- before rates go can and i did find some that offered 4.5 to refinance a 100k mortgage(fixed) closing costs somewhere near 4300. even better borrow from within your family or company and you won't feel like you had to sleep with the mortgage company...really don't think banks are interested in refinancing especially from the same clients...just not happening..peace.