HARP 2 Refinances and 2nd Mortgages
by Tara in Los Angeles, CA, by Barbara in Wheeling, IL, and more...
Ask Kate about HARP 2.0 refinances and 2nd mortgages: Do you know about refinancing with HARP if you have a 2nd mortgage? Can you roll the two together into one loan? What does subordination mean? Why wouldn't a 2nd mortgage lender cooperate with the HARP refinance?
Question 1: Rolling First and Second Mortgages into HARP Loan By Tara from Los Angeles, CA
Hi Kate, I'm considering applying for a HARP refinance. I have a first mortgage at 6.625% and a second mortgage at 8% and I would like to roll them in together. I have great credit and a little equity but I MIGHT not have 20% equity so I'm thinking HARP is a good alternative for me.
I spoke to one HARP lender who told me that I can't roll the two loans together, that I can only refinance the first mortgage through HARP. I can't seem to find any answers online -- do you happen to know??
Tara in Los Angeles, CA
Ask Kate answers: Rolling First and Second Mortgages into HARP Loan
Yes, the information you have received is indeed correct. The HARP plan refinances first mortgages only.
Your lender would need to send a request for subordination to your second mortgage holder who if they agree to, will subordinate again into second position to your first mortgage at the time of recording.
Subordination agreements determine the order of claims during mortgage foreclosure.
Second position is riskier. Not being recorded in first position means a lender will likely lose their investment should your mortgage go through foreclosure.
Go here for more information about Subordination Agreements and HARP Refinance
Question 2: 2nd Mortgage Subordination and HARP Refinancing
Kate, I was pre-qualified by a major bank for HARP 2.0 mortgage refinance. My husband and I have credit scores over 780. We are at about 150% combined loan to value. Our second mortgage is with a major credit union in California on which we owe about 26K. Everything is ready to go, just waiting on subordination update from credit union.
It makes no sense to me why the credit union would not approve the subordination request. However, if they refused, would it be at all reasonable to put the 26K on a credit card at 0% and use the extra income to pay it off.
At a savings of $400 on the HARP refi, I see this as a loss of at least $60K if we don't get it. We are also paying off a car next month that is $600 a month, so we could pay it off fast.
My only concern is we will then get denied by our primary lender for too much credit card debt. Your thoughts are appreciated.
Ask Kate answers: 2nd Mortgage Subordination and HARP Refinancing
Because I have seen contrary-to-traditional guidelines lately, I hesitate to say that you can't use a credit card to pay off a 2nd mortgage during a refinance.
So let's break this down point by point.
Why Do Lenders Fuss Over Subordination Agreements
Will your 2nd mortgage lien holder sign a new subordination agreement? Usually but not always.
Why not? Perhaps the new agreement has objectionable terms. Or they have a new company policy limiting their number of approved subordinations. Maybe they are hoping you will pay off the 2nd mortgage.
On the flip side, unless there was a slip-up at recording, they are already positioned behind the 1st mortgage. So most will agree to to re-subordinate their position to your new HARP mortgage.
When Subordination Agreements Fail, Request Exceptions
But let's assume the 2nd mortgage lender won't sign the subordination agreement. It makes sense, doesn't it, to pay off the 2nd mortgage with a credit card so you can proceed with refinancing? Except traditional guidelines do not allow this!
Even so, why not ask for an exception?
Go about an exception request methodically. Write a letter explaining your plan. Include that the car will be paid off next month, freeing up $600 in the monthly budget and the HARP refinance will be $400 lower than your current payment.
Include a credit card statement showing available balance and how long the 0 interest is available, also the car loan statement verifying the one remaining payment.
I don't want to raise your expectancy too high however you don't have much to lose by trying. Remember it's important to spell out your plan in detail. Don't assume the underwriter can read your mind. You need to give the bank good reason to approve your request for an exception.
Go here for more details: How to Cure Mortgage Approval Hiccups
Question 3: 2nd Mortgage Nightmare after HARP By Barbara from Wheeling, IL
I have two mortgages out with B of A, the larger one is for $146k at 5.25% (refinanced this mortgage in January 2011 under HARP). I have a second mortgage for $26k at 8.75%
The property is worth around $125k - so like many people I am underwater. I have no problem making my payments and have been saving to buy a larger home. We are miserable crammed into this townhome!
I would like to combine the two mortgages and get the rate lower, but nobody will touch these loans. WHY!? I have a score of 720 and money in the bank.
Should I pay off the smaller loan and give up any hope of refinancing?
Ask Kate answers: 2nd Mortgage Nightmare after HARP
Traditional refinancing has loan-to-value (LTV) and combined-loan-to-value (CLTV) guidelines.
LTV is calculated by dividing the first mortgage amount by your home's appraised value. CLTV is calculated by dividing the sum of the first and second loan amounts by the appraised value.
For example, based on your numbers, your LTV is over 115% and your CLTV is almost 140%. This means you owe more than your home is worth, more commonly known as being upside down or underwater.
Because your mortgage is underwater, you need one of the newer programs such as HARP. But since you have used the Making Home Affordable Refinance Program, you are not eligible for another HARP loan. In addition, as previously mentioned, the HARP plan does not allow second mortgages to be rolled into the refinance.
HAMP Loan Modification Alternative
Another option to consider is HAMP, the Making Home Affordable Modification Program through your loan servicer. There is even a provision for modifying 2nd mortgages. See all Making Home Affordable options here
For the best results, get in the know before you call your loan servicer! Go here for the latest scoop: HAMP Tier 2 Mortgage Modification News
, including guidelines and benefits.
Good luck and best wishes,
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