I had some clients refinancing their home who asked, what’s a subordination? This particular couple (names of banks have been changed) had a primary through Wells Fargo and a second line of credit with OnPoint. I explained that if they were to declare bankruptcy or their home was to foreclose, the first entitled to compensation would be Wells Fargo, with OnPoint second in line.
When a first lien is paid off (in this case Wells Fargo), as happens with refinances, the second automatically becomes the first, which means that the second must be convinced to stay the second and allow a new lender to take first; that new lender being Equity Home Mortgage or the bank that is doing the refi.
That’s a subordination; essentially asking OnPoint nicely, will you stay second and allow us to take first so that our mutual client can have a lower mortgage payment and therefore a better life? And usually they say yes because it really doesn’t benefit them to say no. After all, (in this fictional example), if the client stays with Wells Fargo, OnPoint will still be in second lien position…
Banks usually charge $200 to $250 to subordinate. This same couple asked “So this $200 “fee” is for remaining subordinated?” I explained that the $200 fee is technically a Processing fee because of the man hours involved. The bank that’s doing the refinance mails the second a bunch of required paperwork that the second analyzes to determine whether the refinance benefits the client. Another example of man hours involved is that when the second approves the subordination, they draft a Subordination Agreement which they then send to the Title Company.
Subordinations can delay closing and extend interest rate locks because of their long processing times, often 15 business days. A lot of times, a request for subordination can’t be made until the appraisal is in because that’s part of the paperwork that’s forwarded for analysis.
If you’re looking for an experienced mortgage team in Oregon, we are happy to help. Call 503-288-9284 and ask for our Senior Originator, Julee Felsman or send inquiries to LaurenSands@EquityHome.com.