Lifeboats for owners still underwater

The housing crisis is over?

Not for the 5.2 million homeowners who are “seriously underwater,” defined as owing 25 percent or more in mortgage principal than their home is worth, according to research firm ATTOM Data Solutions.

Moreover, softening prices in such cities as Milwaukee, Trenton, N.J., and St. Louis put 17,000 more owners seriously underwater this year.

Many of these owners bought or took a hefty cash-out refinance during the housing boom, and are still waiting for prices to move higher.

According to a recent New York Fed survey, most have been patiently making on-time mortgage payments.

In fact, that’s the right thing to do, since that’s what borrowers agreed to when they took their mortgage, says Doug Ryan of the nonprofit Prosperity Now.

Still, there might be options for those who are having financial problems, or want to move but can’t afford to pay for whatever they still owe after a sale:

Refinance

A federal HARP, or Home Affordable Refinance Program, helping underwater borrowers refinance, ended last year. Now Fannie Mae and Freddie Mac have a loan-to-value refinance option for loans they hold, but only mortgages originated after October 1, 2017, are eligible. It’s likely many seriously underwater borrowers hold loans made earlier.

Still, owners in financial distress should “contact your loan servicer (the company that sends your mortgage bills)” to see if they’ll lower your rate or shave off some principal, Ryan says.

Short sale

Lenders might agree to take less than what they’re owed if a home can’t sell for more. But such sales are hard to arrange, ding your credit and sellers also get a tax bill on the forgiven loan amount.

But it could be “the least bad option” for owners who must move, says J. Michael Collins, at the Center for Financial Security.

Increase your chances of arranging a short sale by asking your lender for a short sale package before you list, says Andy Sachs, of Coldwell Banker in Danbury, Conn.