What's on Second? Mortgages

Many lenders holding second position loans (second mortgages or Home Equity Lines of Credit) are making it difficult for homeowners to refinance. In order for a homeowner to refinance a fist mortgage he has to get the second mortgage lien holder to agree to remain a subordinate position on the title behind the first lender. With the economy the way it is and especially with the drop in home value, second mortgage holders are now requiring mortgagers to reduce principal on the second mortgage (essentially reducing the risk position of the second mortgage) or refinancing the entire second mortgage all together.

Tighter lending standards are making it harder for consumers to refinance even if the refinance lowers monthly payments overall. It's all part of the Catch-22 in credit and lending right now.

Subordination is the practice whereby a Home Equity Line or second mortgage holder agrees to remain in second position behind another first mortgage in a refinance transaction. In the past this was not a problem because home prices were rising anyway and lending institutions were not looking so hard at credit and income in those situations. With the current crisis, lenders have pulled back and are looking at the deal a little more closely-excuse me, a lot closer-than before.

If you are looking to refinance your home and have a second mortgage, make sure you contact your second mortgage holder first so they can run the scenario and see what changes, if any, they may require in order to subordinate the second mortgage to a new first. This will avoid any surprises that may occur down the line. Better to know what your lender is thinking now, before you commit to a refinance, than when you are halfway into a deal and the second mortgage holder puts the kibosh on the entire plan.