It's no secret--mortgage underwriting guidelines have become stricter, and home loan refinancing has become much harder to come by. For those who don't have little halos hanging over their heads, getting approved for a mortgage refinance may be a pipe dream. Ironically, one of the exceptions to this rule is bad credit refinancing. So these days, bad is good.

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How is this possible? Well, lenders have figured out they aren't going to get their money back in the event of a foreclosure most of the time--borrowers simply don't have the equity or the resources to make good on their loans, and lenders stand to lose a great deal when borrowers are upside down on their mortgages and unable to make payments. This goes double for borrowers with bad credit, who are even more likely to end up in default because their interest rates and payments are higher.

So your bad credit mortgage lender may be willing to refinance you to a lower interest rate to avoid taking a loss later. Even if you don't meet the criteria for a mortgage modification through the Making Home Affordable plan, your lender may be willing to refinance you to a better loan now to avoid problems later. And if your credit has improved since you took out a sub-prime mortgage, you may be considered a higher subprime grade or even eligible for an FHA refinance.

You could increase your chances of a favorable decision by getting into a credit counseling program, creating a budget, and demonstrating a commitment to paying off debt without filing for bankruptcy protection.

Right now, people with bad credit actually have some leverage with their lenders--yep, they are scared of you! This is because they have taken serious losses on bad debts that cannot be collected. So they may be more than willing to help you if it ensures that the money they have loaned out will be repaid, even if it means they have to refinance you at a lower interest rate. And over the life of the loan, refinancing even at a lower rate may allow lenders to collect more interest over a longer period of time, making it a win/win situation.