Homeowners, who are slipping on their mortgage payments and unable to change their financial position, may feel like they are in a dead-end spiral and have no option but to walk away or resort to a short sale. But brokers say that it is possible for underwater homeowners with adjustable-rate mortgages to obtain something called a short refinance.
A short refinance is usually when a homeowner negotiates a short payoff with their lender and then gets a new government-subsidized loan through the Federal Housing Authority (FHA) for a lower amount.
With stricter lending practices, most agree that traditional refinancing routes are difficult for those behind on their mortgage payments. One of the main challenges is seeing if your lender will agree to a short payoff, who when agreeing, generally accept 95 percent of your home's current appraised value, says Justin McHood, a mortgage commentator with Zillow.com.
"This is the biggest secret that people aren't talking about," McHood says.