Can you refi with a 2nd/3rd mortgage?

[Anonymous]

Hi.  I have a first 1st mortgage loan of 398K at an adjustable rate of 4.625% that's due to adjust in 2.5 years.  I have a second fixed loan for 27K (it's at a low rate) and an adjustable home equity loan of 48K.

I spoke with a mortgage company who told me that I couldn't refi my first mortgage and subordinate my second and third mortgages.  He said I would have to roll all of the loans together.  He said that no mortgage company in this environment is willing to subordinate other loans.  I don't want to roll in my 2nd fixed loan and I am planning on paying off my heloc in the next 2 years.

In this housing market, it is very tough to judge what my house will appraise out.  In my town, my house has about a 75K range in which they are listed/sold.  My ltv on my 1st is under 75% but my cltv could range from 78 - 86%.  Plus rolling all the mortgages together would put my into a jumbo mortgage.

Is there anything that I can do?  I want to be able to take advantage of the new rates.

[Anonymous]

I believe that your broker was correct.  Once the initial loan is paid off, the second has first dibs and HELOC probably moves up to #2.  In this market, no one is going to take give a primary mortgage when 2 other lender have first dibs. 

Also, I think the loan limits for non-jumbo are dropping quite a bit in January, so you would probably be looking at jumbo either way which is going to be alot higher than the 4.635 you are paying now. 

Personally, I would do what you had to do to get the heloc paid down ASAP (instead of paying closing costs on a refi right now) and then once you get that done start thinking about what refi options you have.

I could be entirely wrong though and hopefully someone with more clear knowledge will chime in.

[ShanetheMortgageMan]

It's certainly possible the 2nd/3rd mortgage lenders would be willing to subordinate, but it's not guaranteed they will.  In order to subordinate they do not want to be put into a position that is riskier than when they made the loan to you.  So if the terms of the 2nd mortgage were 80% CLTV, a 720 score, and a 45% DTI, then it's likely you must meet all of those requirements in order for them to agree to subordinate, same with the 3rd mortgage, whatever the terms were that the loan was given to you probabably must be met for them too.  Both 2nd & 3rd mortgage lenders must agree to subordinate, if one of them doesn't want to, it doesn't matter, you need them both to agree.

Also, in order to apply for the subordination your 2nd & 3rd mortgage lender each have their own subordination documentation requirements.  This is essentially another loan approval.  They will require basically everything that you are providing to get the new 1st mortgage approved, and the process for a subordination approval can take a week or two.  So the process is that you get the 1st loan fully approved, appraisal, title, etc... then once you have the full approval, you (your loan officer or the title company actually) will complete the subordination request packages for the 2nd & 3rd mortgage lenders and send those off.  1-2 weeks (or however long it takes them) later you'll either get a subordination approval or subordination denial.  That is basically the subordination process in a nutshell.