My Seattle Kitchen Remodel: Selecting Countertops

A few weeks ago, I shared that we’re remodeling our kitchen. Boy-oh-boy what a chore it is…we started the process months ago and are just starting to see light at the end of the tunnel. As I’m going through this first hand, I thought I’d share tidbits of things we’re learning along the way.  Today, I’ll share the story of our kitchen counters.

Let’s start by discussing what we had on our “old” kitchen (photo above). [Read more…]

Second Mortgages and Home Equity Lines of Credit

Mortgage Master Service Corporation has second mortgages (home equity lines of credit aka HELOC) available for homes located anywhere in Washington state. The second mortgage/HELOC is limited to owner occupied/primary residences and second homes. They are not currently available for investment property. [Read more…]

Charge Offs: All is Not Forgiven

Part of what I do as a mortgage originator is review credit reports. I’m often surprised how many consumers think that a debt that has been charged off means that it has been removed from their credit history or “forgiven”. Basically, a charge off is when the creditor is writing the debt off their books for tax purposes, it is not terminating the debt owed by the borrower. Often times, the charge off may turn into a collection or be sold or assigned to a collection agency and therefore, mortgage lenders will view a charge off on a credit report as a collection.

I while ago, “Betty Bellevue” called me to see if she could help her mom obtain a mortgage. A couple years prior, her mom had a car that she “gave back” to the bank. She thought she would only have a “repo” reflected on her credit report and that enough time had passed to where she might qualify for a mortgage. What she didn’t realize is that even though the bank had the car back, she had a “charge off” for the balance of the car loan on her credit and that for purposes of a mortgage, we would treat it as a collection (it would need to be paid off and removed from the credit report).

Distressed home owners with second mortgages may be surprised to find charge offs on their credit report following a short sale. Borrowers are often caught completely off guard by this remaining damaging debt being reflected on their credit report. Depending on how the lender reports the short sale to the credit bureaus, it may be just as detrimental as a foreclosure. If you are considering a short sale or foreclosure, I strongly recommend you find an attorney who specializes in dealing with this type of situation.  Linda Ferrarri has great information on her credit blog about foreclosures and short sales which I highly recommend if you find yourself facing this situation.

A charge off also dramatically impacts credit scores. Once a charge off, or collection is paid, credit scores will initially drop as the credit scoring modules view it as a “new activity” on the borrowers credit. Eventually scores should recover and improve. If you are considering a mortgage and have charge offs or collections, it’s important to discuss how and when you’re going to pay them off (some can be paid at closing which will prevent your scores from tanking during the mortgage process).  

You can obtain a free copy of your credit report at www.annualcreditreport.com.

Washington State’s DFI (Department of Financial Institutions) guide for home owners who are considering a short sale and Foreclosure Help.

Refinancing when you have an existing Second Mortgage or HELOC

When you are refinancing your primary mortgage and you have an existing second mortgage or HELOC (home equity line of credit), the new lender will require to stay in “first lien position”. This boils down to who has first dibs on a property in the event of a foreclosure. Lien position is determined by the date the mortgage was recorded. When you refinance your first mortgage and you have an existing second mortgage, the new mortgage will have a recording date that is after the existing second mortgage. Technically, that would put the second mortgage or HELOC in “first lien” position, which would not be allowed with the new lender.  Click here for a no-hassle mortgage rate quote for your Washington state home. [Read more…]

Piggyback Combo Mortgages are Back

I’m pleased to announce that we now have second mortgages and home equity loans available in combination with a first mortgage at Mortgage Master Service Corporation. I see this being very useful with keeping loan amounts under conforming limits (especially once they’re scheduled to be reduced on October 1, 2011).  Here’s some quick points on this program:

  • maximum allowed total loan to value is 85% with a mid-credit score of 720 or higher for owner occupied.
  • maximum allowed total loan to value is 70% with a mid-credit score of 700 – 719 for owner occupied.
  • maximum allowed loan to value of 80% with a mid-credit score of 720 or higher for a second home.
  • available for purchases or refinances.
  • maximum allowed debt-to-income ratio of 45%.
  • available as a HELOC (home equity line of credit) or fixed rates.  

Should you consider using a first and second mortgage combo for your home financing? That’s up to you!  What’s important is knowing and understanding what options are available to you so you can make an informed decision.  If you are buying or refinancing a home located anywhere in Washington state, I’m happy to help you with your mortgage needs. 

Second Mortgage Subordinations May Cause Huge Delays with Refi’s

If you have a second mortgage (home equity line or fixed term), and you are not going to pay it off during a refinance; it needs to be “subordinated”.   This is because of lien position with your mortgages…who gets to be first.   Lien position is determined by when a document (such as a Deed of Trust) is recorded at the county.   If you have two mortgages and are only refinancing the first mortgage, the second mortgage will need to be “subordinated”.  The subordination agreement is a recorded document with the second mortgage lien holder and the borrower that the second mortgage will go back into second position after the new first mortgage is recorded.   If this document was not recorded, than the old second mortgage would be in “first lien position” and the new refinance would be in “second lien position”.  This boils down to which mortgage has more rights in the event of a foreclosure…everyone wants to be first as the further down the line you are, the higher the odds are that the lien may not be cashed out (again, in a worse case scenario). 

Prior to our current mortgage crisis, a subordination agreement typically was not an issue.  We send a request for subordination along with a copy of the appraisal from the refi.  The second mortgage lien holder would review the request, consider the amount of equity remaining in the property and 9 times out of 10, agree.  This process would take a couple days.

With more banks being concerned about depreciating or soft values, they are now taking much much longer to consider if they will all allow a subordination to take place. In fact, I recently closed a transaction where the bank took over 10 business days (this eats away at your lock) for a borrower with 800 credit scores and a loan to value of just over 50% to subordinate a HELOC that with a zero balance.    An Account Manager from a bank that does a large amount of second mortgage recently sent out this memo:

“UPDATE on SUBORDINATIONS:   Please get your files in early… the subordination dept is running approx 20 business days.  I do not have any contacts for rushes etc.  They are trying to work date sensitive deals, but they have not been able to get caught up…”

Folks…20 business days is a month! 

If you are refinancing and have a second mortgage or HELOC that will not be included in the refinance, make sure your loan originator is aware and that they know how long subordinations are taking so they can lock your rate in appropriately.   A 30 day lock with a 20 day subordination is not going to cut it.  You’ll be looking at having to deal with a lock extension.

If your loan to value is higher, there is a possibility that the subordination may be declined.  Discuss this with your loan originator upfront.  Lenders are looking at any way to protect themselves from additional risk during these historic times.  If your loan amount qualifies and you have enough equity, you just may have to include that second mortgage in your refinance.