Refinancing with a Second Mortgage? Patience, my Friend, patience.
Rhonda Porter on 02 26, 2009
I really try to lean towards writing about purchases here at Rain City Guide…don’t know why that is…it just is. But the fact is, there are a lot of refinances going on right now and many may have second mortgages that are not going to be paid off as part of the refinance. A recent comment on my post about unhonored rate locks prompted this post…it’s probably not his mortgage professionals fault his refi is taking this long…it’s his second lien holder.
If a second mortgage is not paid off, the new first mortgage will require it to be subordinated. This means that a subordination agreement must be recorded to make it public record that the second mortgage (often times a HELOC) is in second lien position and not first lien–this all boils down to who gets what rights in the event of a foreclosure.
Just because a lender request a second mortgage/HELOC lien lender to subordinate, doesn’t mean they have too…they get to mull it over and they can refuse to subordinate…which means that with the refinance, if the first mortgage (the proposed refinance) or the home owner cannot pay off the existing second mortgage, it’s probably a dead deal.
Some home owners want to keep their second mortgage or HELOC (home equity line of credit) because:
- they can’t get a new one based on today’s guidelines and lack of availability.
- they have a great rate that can’t be replaced.
- their refinance will be classified as a cash out refinance if the second mortgage/HELOC was not obtained when they purchased their home. (It doesn’t matter if the home owner refianced the orignal purchase money second mortgage and NEVER took cash out of the home–it’s treated as “cash out” with a whole new set of rules and pricing).
- including the second mortgage pushes the home owner over certain loan limts (conforming, FHA, etc.).
Most second lien holders will not consider subordinating until the have a copy of the appraisal for the refinance and full underwriting approval from the first mortgage….then you wait for them to process it. Some banks are taking more than a month AFTER receiving the appraisal and loan approval before they will CONSIDER IF they will subordinate…and there’s no guarantee they’ll do so. I’ve seen some banks charge $250.00 to process a subordination REQUEST (no guarantee). A borrower may be out the appraisal cost and the subordination fee with no refinance worse case scenario.
Have an honest conversation with your mortgage professional and ask questions…
- Should or can you pay off the second mortgage with your refinance?
- How long should the subordination take? (some banks or credit unions take longer than others)
- What happens if you lock and the subordination takes longer than expected?
If you’re a home owner with a second mortgage/HELOC that you want to subordinate, be prepared for a much longer closing which means, if you’re locking at application, a slightly higher rate or more in points–the longer the lock period, the more expensive it is. Or you can risk floating your rate. The choice is yours and there is no guarantee that the second mortgage/HELOC lien holder will subordinate…any risk (borrower or lack of equity remaining in the home) may cause the bank to give the subordination a thumbs down. It’s nothing new.
About the Author: Rhonda Porter
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43 Responses to “Refinancing with a Second Mortgage? Patience, my Friend, patience.”
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With all the 2nd’s and LOC’s out there from vintage 2005,2006,2007 purchases and refi’s, many homeowners refinancing today need to have their lender subordinate to keep within program guidelines and low interest rates. Some situations arise where the subordinating lender reduces credit lines to keep the LTV in check.
Subordinations can take long time: ie, Wells Fargo is telling people 30 days, WaMu can take a while and BECU is quicker etc.. But the key is that subordinations are not overnight, it takes time.
It also costs money to subordinate and many of the lenders who are subordinating are not local— the subordination dept’s can be in Florida or elsewhere such as California.
We have found very few banks are willing to subordinate if the CLTV is above 85%. Some are even as low as 70%. I am still waiting on a bank to explain why it makes sense for them not to subordinate if the borrower is lowering the risk on the first mortgage. Very few homeowners have the cash laying around to payoff the 2nd mortgage, so if they are trying to force borrowers to get rid of the 2nd, it doesn’t seem to be very well thought out.
However, one of the insidious things they have been doing is only subordinating if the borrower refinances the first mortgage with the bank. Talk about shady.
Chase is taking over 20 business days (a month) to review request for subordinations.
Rhonda;
That is an improvement! They were taking up to two months…
Russ–I have two subordinations w/Chase going on right know…and the last we heard from them was 20 biz days…which means we should have them any time. I’ll update. I hope you’re wrong…I’m afraid you’re right.
Yes, Refinancing with a Second Mortgage is often VERY time-consuming. I always enjoy reading Rhonda’s posts.
We started our refi process at the beginning of this year and we are still not done yet because we have a second mortgage–Chase.
We requested to move our file into a “rush file” a few weeks ago since our lock expiration was coming soon but still it took 6 weeks for them to start working on our file. My loan officer set up an escrow appt on 2/13 because she thought we could be done before the lock expirataion but we were not able to receive a subordination agreement from Chase in time. So we had a second signing appt today. We had to request an extention to our 1st mortgage and had to pay a bit more in points in order to keep our rate. Chase told us today that they were working on our file now, so hopefully we can close the deal this time.
YES, Rhonda is so right. You really have to be patient when you are refinancing with a second mortgage! Patient, patient and patient! I have to admit, we were very frustrated!
Oh, and me too… I always enjoy reading Rhonda’s posts too.
Thanks, Yuno!
I hope the person I wrote this post for is reading this… I hope Chase approves your subordination!
Just heard from a borrower that Chase is not subordinating mortgages that are over 70% combined loan to value…I have not confirmed this with Chase yet (not my client)… This confirms what Russ stated in comment 2.
Yes, we are facing the same problem. My loan officer received email from Chase this morning… and this is what they said: “Due to recent declines in market values, there are now CLTV restrictions per state. The max CLTV for WA is 70%, even though the customers’ original LTV was 89%. To complete the subordination, the line will need to be reduced as close as possible to 70%, with a revised 1003 application reflecting No Cash Out.” So we don’t know what to do at this point. We might have to think about a plan B. I am trying to be patient and realistic… and trying to see what is the best option for us now.
Yuno, I’m sorry to hear that. Were you getting cash out on your new refi?
There’s so much that goes into pricing a refi too… if you decide to pay it off with your new refi, it may be repriced as a “cash out” refi–even if you’re not receiving a dime at escrow (unless your second mortgage is from when you purchased your property).
Thanks for sharing with our readers what you’re going through.
I hope it all works out. As tempting as it may be, I don’t have clients sign without having the subordination agreement in hand.
Yes, we were getting cash out. I am not a happy camper at this moment but there is nothing we can do… so we will have to make a plan B. All I know is that we will have to make another trip to our escrow. And this will be our third trip there.
It’s a bummer but hopefully it will work out in the end… one way or another.
Yuno, how long did it take for you to get the response from Chase once your LO submitted the request for subordination?
I just heard from a loan originator that it’s taking about 2 months for Chase to process subordination agreements after they receive the request (at this point, the appraisal is done, the loan is fully approved and ready for docs…everything is waiting on the lender in second lien position to process the subordination).
I am also waiting on a Chase subordination. They received the full application (including appraisal, documents and fees) on Jan. 16, and as of today, they have not yet processed the subordination. It’s way over 2 months.
The lock already expired last month, but the rates are lower now so I am hoping that I can get the same or better rate when/if I actually close. Otherwise, I will have to combine the loans (both were obtained at the same time) and face paying PMI.
It’s really inexcusable. I haven’t heard of other banks taking as long as Chase for subordinating second mortgages.
LO’s… who else is taking 2+ months to process subordination requests?
I have been waiting since January 20, 2009 for a subordination agreement from Chase. We have already signed our new loan papers and had to pay Countywide an extra $650 to extend the loan. If Chase doesn’t come through by 3/30/09, we will have to pay another $650. I have called Chase’s subordination department…they just said there was nothing they could do and that the wait time is 8 weeks, its been 10 so far. I find it ironic that the this bank, on the verge of failure, bailed out by we the taxpayers money, are now costing us more by dragging their feet.
linda, I called our company’s rep for Chase and asked him if he could give me any idea of how long Chase subordinations are taking right now…he just said “a very long time”. I wasn’t satisfied w/his answer…I can tell you what day our underwriting is on for refi’s and purchases…I know they must have an answer…but he just really shrugged it off and I get the feeling this attitude must roll down from the top.
I’m sure they’re short staffed and inundated. Chase was a leader with dishing out second mortgages up to 100% LTV (including stated income).
Here’s an email from a Chase 2nd mortgage rep I received April 2007:
This email followed in May of 2007:
I can’t imagine what they’re having to deal with but it would be nice if they could quickly prioritize by LTV and credit scores who’s able to subordinate and who’s not. I will no longer lock a refi where a Chase 2nd needs to be subordinated. You can count on the lock expiring. Now my clients who have a Chase2nd are “floating” until we receive the subordination… and there’s no guarantee that we will or that it will be approved.
Poor Jamie Dimon blames the mortgage brokers for his troubles with Chase…but it was Chase reps begging for our business…I’ve got loads of emails and rate sheets from Chase (and all the banks) that prove it.
Especially with the upcoming DU-refi plus product coming out, subordinations are gong to become another thing we have to over come to help clients.
We have had some luck with clients writing a hardship letter bascially stating that the new refinance along with the subordination may be the only thing to keep them making their payments and not just defaulting and walking away from the property.
It does seem to take forever and it will most definately get worse as more clients attempt to take care advantage of the refi plus products.
The law of unintended consequences though makes it much more expensive for the client. With the enforcement of the HVCC, clients are going to spend the $$ for an appriasal, hope the value comes in, then hope the second subordintes……rough, expensive days ahead for clients….
Just wait until the avalanche of 2nd subordinations from Obamifications arrive…. Whooee!
Since everyopne is baggin on Chase, I thought I’d link this juicy local story about a Chase branch defecting to Golf….
http://seattletimes.nwsource.com/html/sundaybuzz/2008901463_sundaybuzz22.html
Rhonda,
Where did the 9 minute edit function go? I’m SUCH a losy typist
Last week, I went to the Seattle Mortgage Bankers dinner to hear their spin on HVCC… anyhow, I thought I had two seats at a table until this woman started lifting what I thought was my salad…she pointed out that her business card was under the salad (how was I to know)? Her card was from Frontier… I wound up sitting at another table and she wound up w/empty seats next to her. I also shook hands with the recruiter for Golf. It was an interesting night.
Wow… just received notification from Chase that they have approved our request for subordination… this was ordered on February 4, 2009 for clients with a 60% total loan to value and stellar credit…luckily the rates are where we locked them in back in February!
I just discovered that SunTrust is not subordinating second mortgages unless they have the new first mortgage. How convenient!
I am trying to get a refi closed from Chase, started in Jan 2009; locked in a rate and began the slow process.
I have a HELOC at Key bank for my business, they have agreed to sign a subordination agreement. The problem is both banks are saying that the other is supposed to come up with the document to be signed. Who should prepare the document to be signed at closing? I thought this process would be much simpler being both banks agreed to the subordination, in the mean time I am waiting in the bleacher seats for a resolution!!!!
Any info would be appreciated,
Often times the bank who is being subordinated will complete the form however, the escrow company may be able to do this for you with escrow instructions. Someone authorized at Key Bank will have to sign the Subordination Agreement which will be recorded simultaneously with the new deed of trust (aka mortgage).
Hi,
Is this 2 months waiting for subordination with Chase is still going on.
I have 1st and 2nd mortgage with Chase and can only get 1st mortgage refinance because CLTV is around 90%.
Any comments.
Thanx
Pankaj, any luck with Chase? You would think that with two mortgages, they would be more apt to do the subordination or at least offer to consolidate both. Your mortgage originator can try calling Chase to see when/if the mortgage will be subordinated. 90% may be tough.
Thanx Rhonda,
For now, I am trying 1 FHA loan (5 Yr ARM) for both 1st and 2nd mortgage.
I am hoping that I am making the right decision of moving with FHA loan and not Conventional.
Any suggestion on this, please.
Regds
I’ve had to make the same move for my clients. Why are you doing an ARM instead of a 30yr fixed FHA? (just out of curiousity)
Hi,
I have decided for FHA because of more than 90% LTV and have decided for 5 yr ARM because I am sure that I won’t be staying in this house for more than 5 yrs.
In fact my mortgage broker is also trying to get me Conv 5 Yr ARM…. It is with underwriters…. will confirm how it goes.
Thanx
Good luck, Pankaj–here are a few things I would consider when looking a 5 yr FHA and/or conv ARM.
1) look at the caps. What if you’re in the home for 6 or 7 years? Things don’t always go as planned. FHA will most likely have better caps than conv: 1% max annual vs 5% (typical first adjustment cap for conv–may be other)…
2) FHA does have upfront mortgage insurance which is not refundable in cash however, if you do a streamline refi (which probably is not likely based on how low current rates are) a portion may be credited towards that refi.
3) FHA mortgages are assumable if the new borrower qualifies. This will be an asset depending on what your rate is and is probably more valuable for a fixed FHA vs an adjustable IMO. I do believe we’ll see much higher rates in the future and those selling their homes with a fixed FHA low rate mortgage may have an advantage over those who need to get a higher rate loan on their own based on current rates.
Do make sure your mortgage originator is approved to do FHA loans.
Best!
Hi,
we just had a situation with subordination(almost rhyme).
we want refinance and Amerisave send subordination papers to a Bank Of America where we have home equity loan. BOFA return papers with a stipulation to move to a first position.
Amerisave obviously refusing as they are going to refinance first mortgage and investing much more money.
is there anything we can do?
thanks a lot for a reply.
Zina, that’s pretty stinky of BOA if I understand you correctly, they’re willing to do the refi if they’re in first lien position–however if you stick with the lender of your choice, they will not subordinate.
I bet we’ll be seeing more of this.
It’s up to BOA (any second lien holder) whether or not they’re going to refi.
wow sounds like most of you at least got your sub O signed. I just found out I was denied. Yep. After 3.5 months of agonizing waiting, and after spending $725 attempting to refinance. ($300 for appraisal, $300 for Title search, $125 for 2nd lender to provide the Sub o Letter, which they denied so wheres the letter, no letter, wow what a way to make money!!!!) isnt that nice as if im not in deep enough. where do i go from here?? church? thats about the best chance i have now, lots of prayer…im scared…
Maria, did they give a reason for the denial? I’m working on a subordination right now and they’re making my client reduce their the available credit on their HELOC.
Rhonda, I copied below the reason they denied my loan, & they suggested a rate and refi option, i have no idea what that is, but my rate now is 5.1% so im not sure how much lower it would go. saving $120 or so a month truly doesnt help much. I owe $48,000 on my Heloc of $50,000. Otherwise I would tell them to reduce it but I guess they are afraid I wont be able to pay them back. By them giving me the sub O letter, and by me doing this refi really puts me in a better position but i guess im too much of a risk. my debt to income ratio stinks.
Reason from underwriters:
“They would do it behind a rate and term refi b/c they are already in 2nd place to that current loan amount.
If they go in front of a larger loan amount they would be less equity in the property and less likley they would get paid if there was a foreclosure”
p.s. do the underwriters ever speak to the brokers? im being told they never speak to the public. thanks a million for your help!
Maria, a rate-term refinance means that you’re not getting cash back (or minimal cash back). Subordinating mortgages has everything to do with foreclosure and who’s going to get paid back which is why second mortgage lien holders are scrutinizing whether or not they’ll provide a subordination and under what terms.
A rate term refi may offer you a better rate than a “cash out” refi. Are you getting cash out or paying off a second mortgage that was obtained after you purchased your home?
Mortgage originators can speak to underwriters. It may depend on the structure. Mortgage brokers are detached from the underwriter since the underwriter is at a entirely different company–however that doesn’t mean that they cannot contact the underwriter directly or indirectly through the wholesale lender rep (sales person for the mortgage company the loan is being brokered to).
Mortgage originators at banks and correspondent lenders may or may not be able to talk to underwriters even though they typically work within the same company depending on company policies and where the underwriters are located. For example, a bank may have a regional processing center located miles away or located in another State…because of the volumes they handle, they may not want LO’s to contact an underwriter directly. I would imagine that there would be some system where they could talk to a manager or where the processor could have more access to the underwriter.
I work for a correspondent lender and my underwriters sit about 10 feet or less from where my desk is. However, I do my best to stay out of their way and let them do their jobs so they can stay focused on the file that’s in front of them. However, if I have a situation that requires attention that my processor and I cannot resolve, I will go to our management to review it to see what our options are.
Underwriters typically do not speak to the borrowers–they are “behind the scene”. In fact, it’s rare that my processor talks to the my clients–for the same reason that underwriters don’t–they need to stay focused on the transaction in front of them.
I think it’s the mortgage originators job to communicate with the borrower–that’s what they’re being paid for.
what i was trying to do was debt consolidation, so the broker finally got a lender to approve my loan, meaning i would refi my 1st mortgage and pay ALMOST all of the credit card companies, i was not able to pay every single one of them off because they wouldnt approve me for that dollar high of an amount, and i also was NOT paying off my 2nd mortgage (Heloc). So basically we were ready to go, everything was approved…and then the heloc lender said nope, not giving you this letter. so. thats basically it. thank you again for your insight and kindness. things eventually work out in the end right? i can only hope they will….
That’s probably the issue with the subordination, Maria. I would see what type of rate you would qualify for with a rate-term refinance. It may be lower than the cash out/debt consolidation refi you’re looking at. You can apply the savings towards paying off your debts each month.
Second lien holders are not likely to approve subordinations with debt consolidations (i.e. cash out) refinances…their fear is that the equity is being withdrawn from the property prior to a foreclosure and they may viewing the nature of the refinance (debt consolidation) as a riskier transaction vs a rate-term refinance.
Good luck!
ok thanks Rhonda again for your help!!! p.s. do you think my rate-term refi would be lower then my current rate now though ? my rate is 5.1 the rate for the cash out was between 5 and 5.25 …im not sure if it can go any lower…
I just survived my Chase subordination experience, so my Wells 3-step refi on my first is finally going through, pushed a month from the original close date. the wait for the HELOC subordination was just under 30 days. I did have to sign a form Chase drafted up “requesting” that Chase lower my HELOC balance before they would process the subordination. My ~$50k HELOC is nearly maxed out. Fortunately, they only made me request a reduction of about $2k, which is about exactly how much I had open on the HELOC, although they claim the reduction was to get the CLTV where it needed to be. in any case, I was happy to do it, since my fear was that they were going to force me to pay the balance down significantly, which would have likely blown the deal for me. As a self employed person, i’m thrilled to finally pull off a refi — my monthly is dropping by over $500 and in hindsight, aside from faxing a few things, neither WF nor Chase made me jump through hoops or really “do” much of anything…except wait. That’s the hardest part.
So here is my situtation with National City as my heloc holder.
We are looking at doing a straight refi- no cash out. Rate reduction of over 1.5 and pmt reduction on the first of about 200. Apprasial came back at 169,000. Refi of first at 112,000. and open heloc of 25k with a 0 balance. Asked National City for a subornation and they said they would only if we reduced the heloc to 7k. We have excellent credit and have great remaining income. Even if we did a cltv at 80% we are looking at the heloc being at 23200. We want to keep the heloc open because we are planning on buying a truck or doing some home improvements. The only time we have had a balance on the heloc in the last 3 years was when we did new windows and we paid it off in 8 months. I wish with the new guidelines for the hamp and all the other things that are going on, that second mtgs would be required to subornate if it was in the best interest of the customer. I am not doing anything the change their position then before the refi, but now they want all kinds of stipulations. This Sucks.
It’s really tough with second mortgages…and when it’s a HELOC, the lender looks at the entire credit line (even if you’re not using it since it’s available for your use).