Second Mortgages Vanishing?

May 15, 2009
Matt Isleib

 

In the market for a second mortgage, good luck. Have a second mortgage already and want to refinance your first? Good Luck. Not only are second mortgages becoming harder and harder to get if you presently have one and want to refinance and not pay the second off banks are not all that willing to subordinate. In some instances there have been some banks and lenders who will not subordinate regardless of the circumstances.

The term ‘subordinate’ means that your second mortgage lender drafts a form agreeing to allow your new first mortgage lender with whom you are refinancing with take the first position on your title. In a nutshell your second mortgage lender agrees to remain in second position. Seems routine right? Why would there be an issue? The second mortgage lender knew you had a first mortgage and if the terms are better for the both of you it is good right? WRONG.

At the height of loose lending second mortgages went up to 100 percent cltv (cumulative loan to value) (add the first mortgage and the second, divide by the home’s value you get the cltv). Even some lenders offered 125% financing. Ok those days are long gone and for more realistic time’s banks and lenders would offer a second mortgage up to 90 cltv.

In today’s market the last bank I knew of that was offering 90 cltv was TD Banknorth. I spoke to a friend of mine at their Norwalk, CT branch and as of today that is still an option but barely. Nowadays 80 cltv for the most part is the maximum.

I recently have had success with Newtown Savings Bank and People’s United Bank in getting subordination agreements approved. It is the larger banks for example JP Morgan Chase who seem to make getting a subordination agreement a living nightmare for their clients. I am personally 0-3. All of them were 80 percent or less. Chase for as long as I can remember was at a 90cltv, now asking them to subordinate is a mere waste of time. Six weeks later and a message saying they only will go to 65cltv to subordinate was what I got. Makes no sense but then again often times banking has no common sense.

In summary the second mortgage market is a thing of the past. Unless you have a tremendous amount of equity in your home is it worth applying for. If you already have a second mortgage and want to take advantage of interest rates in the 4’s hope that you can pay your second mortgage off or have a lender that is willing to subordinate. Remember 80 cltv is the magic number. If you have a second mortgage with JP Morgan Chase I feel for you.