How Do I Refinance a Second Mortgage With HARP 2.0?

Borrowers with second mortgages who are attempting to secure a refinance through the Home Affordable Refinance Program (HARP) may run into obstacles. 

With traditional refinance loans, a first and second mortgage can be consolidated into the new loan.  HARP does not allow borrowers to combine a first and second mortgage.  Instead, the second mortgage must be resubordinated.

HARP and Resubordination

Unfortunately, some lenders may refuse to resubordinate your second mortgage.  Why?  If a borrower with two mortgages defaults, the first lender will have priority when collecting deficient funds.  

This means that if your property forecloses, your second lender will only receive any remaining funds once the first lender has been entirely paid off.

Furthermore, you should note delays can arise when navigating a HARP refinance with a second mortgage. As with any loan subordination, processing the request will require some time to complete, and you may be expected to pay fees for these services.

Second Mortgage Lender and LTV for HARP

Second mortgage lenders on HARP loans occasionally impose loan-to-value ratio (LTV) and equity restrictions on potential HARP borrowers. 

For example, some lenders will only agree to resubordinate for borrowers who own a certain amount of equity - up to 20% in some cases.  This essentially means that you must have a corresponding HARP LTV ratio less than 100%, and as low as 80% for more restrictive lenders. 

With a significant portion of HARP refinances being performed by underwater borrowers, or borrowers with negative equity, such requirements can be extraordinarily inconvenient. 

Despite these few uncooperative lenders, many have relaxed their requirements as the HARP program gains popularity, with many now being willing to resubordinate for upside down homeowners.

When negotiating with the second mortgage lenders, be sure to inquire about any maximum combined loan-to-value (CLTV) restrictions. 

Furthermore, when discussing re-subordination with a second lender, borrowers should be prepared to decline the lender’s offer to refinance the second mortgage through HARP. 

Second mortgage lenders offer much less advantageous mortgage rates and will attempt to capitalize on desperate borrowers hoping for lower mortgage rates.

Additional Considerations for a Second Mortgage on HARP

Freddie Mac LTV Restrictions

Freddie Mac and Fannie Mae have slightly differing regulations in terms of refinancing through HARP with a second mortgage. For Freddie Mac’s version of HARP, referred to as the Open Access Relief program, the CLTV of the two combined mortgages does not have a limit, although the first mortgage LTV cannot be more than 105%.

Fannie Mae Guidelines

Fannie Mae’s variant of HARP, known as DU Refinance Plus, provides borrowers with a refinance loan with no limits on LTV ratio of either the first or second mortgage, as well as not imposing any restrictions on combined LTV.

Second Mortgage Eligibility

When refinancing through HARP, the second mortgage does not have to be backed by Fannie Mae or Freddie Mac to acquire the loan. The HARP refinance ignores the second mortgage, which necessitates the renewal of subordination.

Gretchen Wegrich

Gretchen Wegrich is an editor at Lender411. She specializes in mortgage basics, personal finance and green living. She graduated with a bachelor's degree in writing from University of California, San Diego and previously worked at the Santa Cruz Sentinel. Contact her at gretchen@lender411com.