HARP second mortgageUnfortunately, this is one area where the HARP Home Affordable Refinance Program is lacking.

Unlike traditional loan programs that allow a first and second mortgage to be refinanced into one new loan, this is explicitly not allowed for a HARP loan.

Homeowners with underwater properties that have both a 1st and 2nd mortgage can only refinance if their existing second mortgage lender agrees to subordinate the 2nd mortgage to the new HARP mortgage.

The good news is that the HARP Program is extremely flexible in its treatment of second mortgages by allowing an unlimited combined loan-to-value ratio (CLTV).

The same cannot be said though about 2nd lien holders that must agree to the subordination. At this time, the majority of lenders require homeowners to have at least some equity (up to as much as 20%) before they will agree to subordinate the 2nd mortgage to a new HARP loan.

There are however some encouraging signs that lenders are starting to loosen their equity requirements for second mortgages and some will even grant a subordination to upside down homeowners now.

Your best course of action is to contact your second mortgage lender directly. Ask if they would agree to subordinate your loan to a new mortgage originated under the Home Affordable Refinance Program and if they have any maximum combined loan-to-value restrictions.

Be prepared though for a hard sell to refinance directly with them, but it will be in your best interest to say no. Second lien holders are known to offer far worse rates for a HARP refinance because they take advantage of your moment of desperation.

Share your experience and help others looking to subordinate their 2nd mortgage by leaving a comment below.

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