Editor’s Note: The HARP program expired December 31, 2018, and a popular replacement option, the Freddie Mac Enhanced Relief Refinance (FMERR) loan expired September 30, 2019.
However, Fannie Mae’s High LTV Refinance Option (HIRO) currently has no expiration date. Similar to HARP and FMERR, it’s a great loan option for underwater homeowners who don’t have enough equity earned in their home to qualify for a refinance.
Refinancing when you have a second mortgage can be done; preparation helps.
How do I refinance a conventional loan I obtained with a mortgage instrument formally known as an 80/20 loan (80% first mortgage and 20% second mortgage)? We have tried to sell the home but have had no luck. We are underwater. We want to lower our monthly payment until the market allows us to swallow a loss or to break even.
— Odie from Texas
You’re in a very common predicament. Many bought a home with an 80/20, as it was a great way to buy a home with zero down. However, now it’s proving hard to refi one or both of the loans.
Your best bet is HARP. For a complete guide, see our HARP page.
The first step to HARP is to check if your current first mortgage is owned by Fannie or Freddie. If so, there’s a good chance you can qualify for HARP. Check your loan at both of these sites:
Your best strategy is to refinance the first mortgage and keep your 2nd mortgage open. Hopefully your 2nd mortgage has a small enough balance so that you can work toward paying it off instead of refinancing. There is no HARP-like refinance program for 2nd mortgages, and your total loan compared to the value of the home is probably way too high for any bank to approve the second mortgage refinance.
You’ll need to subordinate the 2nd mortgage under the new HARP refinance. Subordinating is basically getting a document from the current 2nd mortgage holder saying they agree to go back into 2nd position when the new 1st mortgage is complete. Your lender will take care of getting this for you.
Lately, second mortgage lenders have been pretty good about subordinating their loans behind underwater HARP refinances. When HARP first came out, second mortgage lenders often denied subordinations because the loan-to-value was too high.
If your loan is not Fannie or Freddie owned, this will be a hard refinance to complete. It would be completely up to the owner of the loan as to whether they will offer you a refinance option.
Hope this helps, and thanks for asking.