What if the Bank Won't Refinance Under the Making Home Affordable Plan?

Reasons For Rejection

To participate in the Home Affordable Refinance Program refinance, homeowners must be seeking to refinance a loan owned or guaranteed by Fannie Mae or Freddie Mac, must be requesting a refinance for a property with a maximum of four living units and be current on their mortgage payments. Finally, the Home Affordable Refinance Program is available only to homeowners who owe as much as 125 percent of their home's value on their mortgages. This means that the owner of a $200,000 home can refinance under the program if that owner owes as much as $250,000 on a mortgage loan.

Just because mortgage lenders refuse homeowners' request for a refinance through the Home Affordable Refinance Program doesn't mean that these owners can't qualify for a refinance through other means. Lenders can refinance any home loan they choose, outside of the government program. Many mortgage lenders require that homeowners have at least 20 percent equity in their homes before they approve a refinance. But not all follow this rule. Lenders might be willing to refinance homeowners' loans even if their equity levels are below the 20 percent line; these homeowners, though, will increase their odds of this if they have a long history of paying their mortgage loan payments on time and if they have a high three-digit credit score.

Homeowners aren't limited to refinancing with their current lender as long as they don't refinance through the Home Affordable Refinance Program. They can shop around with lenders across the country; homeowners can work with any mortgage lender as long as it's licensed to do business in their state. Not all lenders follow the same refinancing rules. Homeowners might be able to find one willing to refinance the loans of homeowners who don't have the typical 20 percent equity. Again, it helps if homeowners have a strong credit score -- usually 720 or above on the popular FICO credit-scoring system -- a high-gross monthly income and a history of paying their mortgage bills on time.

There are times when homeowners won't be able to secure a refinance, even after shopping around with other lenders. This usually happens when homeowners' residences have lost so much value that they have little to no equity. Those homeowners with negative equity in their homes especially will struggle to refinance. In such cases, homeowners may have little option but to wait for their home's value to recover. They can also try to refinance again after they've paid more mortgage payments, gradually building up their home-equity level.