New Loan Officer Question - cashout refi w/ subordination

[Anonymous]

Hi all,

I have been originating out of college now for only a few months and thought I would look online for an answer to my situation. It may sound confusing but it is difficult for me to understand it, much less try to explain it. Here it is:

I have a borrower who is well into the cash out refi process. I was unaware (on accident or by borrower because I did ask at the beginning) that there is a second mortgage connected to the subject property. It caused the borrower to go from receiving about $12k cash back to needing to bring $26k cash to close (Largely due to the fact that I had to switch my LTV from 80% to 75% w/ subordinate financing). The borrower is not able to pay it off outright so would like to finance it into the loan as well. At this point I would rather just do a LCOR so I am not limited at my LTV. HOWEVER...

I was told that a second lien that was created non simo must be a CASH OUT. So my question here is...

If I request to subordinate the second mortgage to get them to stay in second position, will I then be able to swap my borrower over to a LCOR that has higher LTV?

Thanks,

-New Guy

[ShanetheMortgageMan]

Correct, if you subordinate the 2nd and only refinance what is owed on the first then the first would be considered a rate/term refinance, not a cash out.

[Anonymous]

If the 2nd was used in conjunction with the 1st to purchase the property (not originated after the fact), you can pay off both and do a rate and term refi. If the 2nd was originated after the purchase and you want to pay off both, it must be a cash-out.

If the 2nd is going to subordinate and you are just refinancing the 1st, the new 1st will be a rate and term but the 2nd must still be factored into the CLTV.