Is it even possible to refinance a VA loan with a second mortgage attached to the property? Well, to understand if this is possible I need to discuss what is involved when there are multiple mortgages on one property. A second mortgage is given to a Veteran homeowner when they have equity in their home and they want to borrow against it; so they go to a lending institution and take out another loan against the home. Now there are 2 mortgages listed on the title. This can be problematic when trying to do a streamline refinance. Mortgages are recorded on a title based on dates. When a Veteran uses his/her VA loan to buy a home, then there is a Mortgage recorded on the title as a first mortgage (recorded first). Then they take out another mortgage on the same home (recorded second). This is pretty simple to understand.
When VA mortgage rates drop and a Veteran wants to do a streamline (non-credit qualifying loan) refinance and they have a second the mortgage company must now complete a subordination request. This is simply preparing documents or a loan package for the second mortgage company outlining the details of the streamline refinance transaction. You see since the second mortgage company has an interest in the property (they loaned money on it) they must agree to stay in second lien position, or subordinate to the new first mortgage. Most of the time a second mortgage company will agree to do this, but there are instances when they will not. There are 2 main reasons for this – 1. The borrower is late on the payments with the second mortgage company. 2. The cost or investment to refinance the first is too high and might affect the loan to value based on the original appraisal. If the second mortgage company refuses to subordinate then the refinance of the first will not take place.
As a Loan Officer, this can be very frustrating at times because I can see much value when doing these streamline loans for Veterans. There isn’t much recourse we can take when a second mortgage company denies a subordination. I would say about 75% of the time we can obtain an agreement from the second mortgage company. My suggestion to all Veterans who have second mortgages is to attempt to refinance because the odds are in your favor that your second mortgage company will agree to remain in their current lien position and this works for California VA Loan, Florida VA Loan, and really all VA Loan types.