Wednesday, August 1, 2012 - Article by: Lender411 Member
What I am going to write about here relates to the restriction to refinancing conventional or Govt. loans when there is a 2nd lien on the property held by Utah Housing. This proves problematic; I will provide a possible solution below.
As you may know, rates are lower than they have been in 50 years. This provides bankers yield money to pay closing costs, escrows and other allowable costs and still provide a lower interest rate and lower payment. 1st Mortgages, to be refinance must be paid off and reconveyed off the property so a new 1st lien may be recorded against the property. If there are any other liens like 2nd mortgages they must also be reconveyed off the property. Problem is many of the effective refinance programs available today don't allow paying off of 2nd liens when redoing the 1st lien. So what happens to them is they are re-subordinated to the new 1st lien? They relinquishes their position or lien to the property so a new 1st lien may be recorded against it. This happens in most cases providing the 2nd lien holder is comfortable with the change in position reflected.
Unfortunately, Utah Housing, a non Profit organization in Utah designed to help homebuyers with down payment assistance is an agency the holds 2nd liens. They do because they provide them and down payment assistance. The problem this presents is that they will NOT re-subordinate their 2nd lien position to any and all new 1st liens. Let use an example to make some sense out of this. If someone lets say has a 5.5% 1st lien of $150,000 and a 2nd lien from Utah Housing for $6,000. It may serve them well to refinance down to 3.5% on the 1st lien saving $100's per month. Unfortunately they are restricted from doing so cause they would have to pay $6,000 to satisfy Utah Housing when closing on the new loan. And most people don't have $6,000 just lying around for such purposes; if they did they would not have used Utah Housing in the first place. So how would someone refinance a 1st lien when Utah housing has a 2nd lien to the property they will not relinquish unless paid off?
Well as you may know, rates are lower that have been in 50 years, what this means is that there is banker yields available to help with many costs; closing costs, escrows and possibly other costs as noted. On a conventional loan of $200,000 that is at 3.75% there is plenty of funds to pay all the costs mentioned here so the borrower is left with a 1st lien payment only.
For more information or if you have a specific case you want to ask us about you can reach us at www.bestmortgageinutah.com or William@bestmortgageinutah.com
William Menghi is a Principal Lending Manager with Customer First Lending also known as bestmortgageinutah and has 19 years of Lending experience along with a long list of satisfied customers. He may be reached at 801-878-6350 MST 9-5 PM M-F most weeks.
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