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Are there any relief programs for underwater mortgages NOT backed by the FHA, Freddie Mac or Fannie Mae?

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Q: Do you foresee any future relief programs for underwater mortgages that are NOT backed by FHA, Freddie Mac or Fannie Mae? My mortgage is through my local credit union.  I am $25,000 underwater, I pay my mortgage on time, and I would like to take advantage of the low refinance rates too.

A: You should first make certain that your loan isn't owned or backed by Fannie Mae or Freddie Mac. A loan can be sold to those entities but still be serviced by your local credit union. It doesn't hurt to check.

If not, and at the moment, the answer is "probably not." That is, unless your credit union was interested in writing down the balance of your loan and allowing you to refinance into the FHA's "Short Refi" program. Unfortunately, a lender with a good, performing loan on the books like yours probably isn't interested in taking the principal and profitability hit which would accompany such a move. Shareholders and members would likely balk at such an offer.

While there are presently no "programmed" responses backed by the government for your situation, any given lender might be able to offer you a "private" loan modification of some form. Any such arrangement would be negotiated on a one-off basis, but it doesn't hurt to inquire. Perhaps you might be able to negotiate an arrangement where you can cover the lender's amount of required writedown in order to be eligible for a Short Refinance, for example. However, the out-of-pocket expense might be considerable, diminishing the value of any refinance.

The bottom line is that you probably won't be able to take advantage of today's low interest rate environment, and it's cold comfort to know that there are probably hundreds of thousands (if not millions) of other homeowners in the same situation as you are.

About the author:

KTGA 25-year expert observer of the mortgage and consumer debt markets, Keith Gumbinger has been cited in thousands of articles covering a wide range of consumer finance and economic topics in outlets ranging from the Wall Street Journal to the Bottom Line newsletters. He has been a featured guest on national broadcasts for CNN, CNBC, ABC, CBS and NBC television networks and has been heard on NPR and other national and local radio programs. Keith is the primary researcher and writer for HSH.com's MarketTrends newsletter and has authored or co-authored a number of consumer guides on mortgages, home equity, refinancing and more.

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