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New rules allow more holders of underwater mortgages to refinance

Changes in the Home Affordable Refinance Program, or HARP, remove some refinancing barriers for those with underwater loans backed by Fannie Mae or Freddie Mac.

January 08, 2012|Liz Weston | Money Talk

Dear Liz: I have an adjustable-rate mortgage that is currently at 3.125%. I'd like to fix the rate, but no one will even discuss it with me because my house has been appraised at less than $100,000 and the balance of the mortgage is $144,319. I have never been late, and my credit scores are above 800. What can I do? I don't want a mortgage modification. I just want a fixed rate.

Answer: If your loan was backed by Fannie Mae or Freddie Mac, and if it was originated before June 1, 2009, you may be in luck, thanks to recent improvements to the federal government's Home Affordable Refinance Program, or HARP.

Federal officials eliminated certain fees and barriers that made lenders reluctant to refinance underwater mortgages. They also eliminated the limit on how far underwater you could be to get help. In the past, you could owe no more than 125% of a home's value.

You'll first need to find out whether you have a Fannie Mae or Freddie Mac loan. You can visit http://www.fanniemae.com/loanlookup or call (800) 7FANNIE ([800] 732-6643). You'll find information for Freddie Mac at http://www.freddiemac.com/corporate or by calling (800) FREDDIE ([800] 373-3343). The toll-free numbers are open from 5 a.m. to 5 p.m. Pacific time.

Borrowers must be current on their mortgage payments with no late payments in the previous six months and no more than one late payment in the previous 12 months. Loans that have been refinanced under the old HARP guidelines aren't eligible for another refinance.

If your lender isn't offering HARP refinances, you can search for others that are. You may want to contact a counselor approved by the Department of Housing and Urban Development (referrals at http://www.hud.gov) to help you through the process.

Don't make the mistake of entering "HARP" or "Home Affordable Refinance Program" into a search engine. Most of the links that will turn up will be to for-profit sites, not all of them reputable. For the real deal, visit http://www.makinghomeaffordable.gov or call (888) 995-HOPE ([888] 995-4673).

Loans may not be on credit reports

Dear Liz: Here's a cautionary note you may want to share. I filed for bankruptcy almost three years ago. Many sites recommend taking a small personal loan or purchasing something small, like furniture, to pay for over time and improve your credit. So I bought a sofa from a local retailer with a no-interest loan deal. It is now almost completely paid off. When I checked my credit report recently, I noticed the installment loan wasn't there. I called the retailer and found that they didn't report to any credit bureaus. The lesson, of course, is to not presume that just because you can get a loan from somewhere, it will be reported on your score. I now have a sofa I didn't really need and no benefit to my credit. And I feel stupid for not thinking to ask.

Answer: Plenty of lenders don't report to credit bureaus. Even some credit unions, which are normally consumer-friendly, opt to report to only one credit bureau.

If you're trying to rehabilitate battered credit scores, you want accounts to be reported to all three bureaus so that all three of your FICO credit scores (one from each bureau) can benefit. It doesn't do your scores any good if a loan you're paying on time isn't reported to any bureau, and it does you only limited good if it's reported to just one bureau because your other two scores won't benefit.

You typically can find out simply by asking before you apply for a loan whether the creditor reports to all three bureaus.

The fastest way to improve your scores is to have both installment and revolving accounts. Revolving accounts include credit cards, but you don't necessarily need to borrow money to improve your scores. Using a credit card and paying it in full each month also can help. If you don't have a card, consider applying for a secured version, which gives you a credit limit equal to an amount you deposit with the issuing bank. But again, make sure the issuer reports the account to all three bureaus before you apply. You can find secured-card offers at LowCards.com, CardRatings.com, CreditCards.com and other sites.

Liz Weston is the author of "The 10 Commandments of Money" and "Your Credit Score." Questions for possible inclusion in her column may be sent to 3940 Laurel Canyon, No. 238, Studio City, CA 91604 or via http://www.asklizweston.com. Distributed by No More Red Inc.

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