To the surprise of many lending professionals becoming familiar with the newly released guidelines for what many have coined as HARP 2.0,  they are learning that the subordinating lender may not necessarily approve the subordination.   While declines are not the norm it can happen and derail the refinance transaction placing further burden on borrowers who are trying to benefit from historic low interest rates.

One of the most common responses from a loan officer who learns that the subordinating lender has declined to subordinate to a new first loan approved under the new HARP 2.0 program is “you can’t be serious, they participate in the HARP program so they should approve it!”  The answer is not necessarily.

Subordinating Lender Defined & HARP participation

Lenders that have provided homeowners with Home Equity Lines of Credit are commonly referred to as a second lienholder.  They are in second lien position behind the homeowner’s primary lender (which could also be the same lender).   The lender is in a subordinate position and is the “Subordinating Lender.”  While the subordinating lender participates in the HARP program they do not “automatically” approve the subordination.

Because the subordinating lender is in a subordinate position they have to protect their financial interest in a market where declining home values have eroded the equity of the property.  Everyone knows that lenders Home Equity Lines are getting wiped out with short sales and foreclosures.   Underwriting by the subordinating lender is required and the homeowner and property must meet their guidelines.

Subordinating lender underwriting guidelines

The subordinating lender will require the homeowner to meet the lender’s underwriting guideline such as DTI (debt-to-income ratios), CLTV (cumulative loan to value: the ratio of the loans secured by the property and  the value of the property, FICO credit scores, appraisal and other requirements.

From our experience (Note: our company does not underwrite the subordination) most subordinations that are declined are due to high debt to income ratios over 50-55% coupled with poor credit scores or other factors.    It is much more common for a straight approval or a conditional approval.  In a conditional approval, it is possible that the subordinating lender may require the existing line of credit to be reduced to the outstanding balance or reducing the new first lender’s loan amount to make the CTLV’s comply with the subordinating lender guidelines.  Sometimes this means the borrower may have to come to closing with funds they were not planning for.

Many lenders do have DTI caps of 50-55% and will not approve a subordination where the borrowers debit to income exceeds that level under any circumstances.   Some lenders also allow up to a maximum of $5000.00 or 2-3% in allowable closing costs to be rolled into the new loan over payoff.   For example, if your existing first loan payoff is $100,000 your new first loan cannot be higher than $105,000.

The good news is that the majority of subordination requests are approved.

Surviving Bank of America

Six tips & expectations to survive the Bank of America subordination process:

1)  Prepare clients for a long underwriting period.  

It would not hurt to go to your local grocer or bathroom cabinet to have something at the ready to sooth your headache or a squeeze ball at the ready for your frustration.   Having some James Taylor on in the background might calm your spirits.

2)  Do not lock your loan for under 30 days.

3)  Pay Bank of America off

If there is enough equity, seriously consider paying off the HELOC or 2nd mortgage with Bank of America and opening another line with a different lender after closing to prevent having to deal with a Bank of America Subordinations.

4) Turn times published are unrealistic at best.

Their published 10 day underwriting turn time is just flat out not realistic.   In fact, it is outright false in almost every case where we processed a subordination through our escrow firm or here at Nationwide Subordinations.  For your convenience, on our homepage in the middle left section, we publish near live turn times every week for several lenders.  This should help you prepare for a realistic time frame.

Why is their published turn time unrealistic?  Here’s a brief sampling of our own experiences this Fall with pipeline files at the Bank of America Subordination department:

• Bank of America Subordination dept. outright lost an inbound, signed for, Fed Ex package with a cashiers check (later accounted for nearly 12 days after they signed for it).  Several customer service representatives could not even provide a solution for whom to research the problem.
• Bank of America Subordination department routinely takes DAYS for their processors to provide documentation of conditions that were provided verbally over the phone by customer service representatives that have literally no experience in lending other than reading internal notes to you (from their computer monitor) over the phone.
• Bank of America customer service representatives have provided erroneous information causing a homeowner, processor and closing Attorney to question the progress of their subordination.
• Bank of America subordination department asks for duplicate documents already provided but mysteriously is not part of the package initially provided.
• We were asked by Bank of America customer service/subordination staff to fax the same document to three different bank associates over a two week period after which it took days for them to log it in their system.   Once they logged the fax in their system, they started their 10 days underwriting period three weeks after they have received the subordination request package!
• Having a file in “escalation” status doe s not mean it will be underwritten the same or next day.
• Not once has Bank of America followed our instructions for contacting us when approval has been made nor providing Fed Ex tracking of the outbound subordination.  Not once.

4)  Loan amount increase or lender change? 

Please say to yourself 10 times in a row, “I promise to notify my processor and Bank of America BEFORE the subordination is shipped.”   If you happen to need an amended Subordination after it has been shipped, prepare for more time and money to be spent.   It will not happen instantaneously.

5)  How’s your phone skills?

If you decide to process and track your own subordination be prepared to spend at least 20 minutes or more on the phone per day tracking your subordination status.    Dont’ wait for Bank of America to contact you—it will not happen.  It is not uncommon for our company to be on the line with Bank of America on a file for anywhere from 30 minutes to over an hour.  Sometimes we are disconnected after a long hold.   This is primarily the #1 reason people elect to use our service vs. going the DIY route.  They don’t have time or patience.

6) You will almost never be in contact with a Bank of America subordination staff or underwriter on a specific file unless they happen to contact you via e-mail.   And then, do not expect a response to any of your questions quickly.   In many cases, responses to a question will not occur until the next business day which can result in costly delays to your transaction.

Bonus: 7)  Refer to the blog posts by Bank of America customers and lending professionals regarding their experiences.  Note:  we could not publish the majority due to “salty” or “sailor” language.

Bonus: 8)  When all else fails, use social media and tweet for help:   @BofA_help.   At least you will be responded to with the nicest customer service reps that can do virtually nothing to help you other than providing you with some of the information you already have.

-Nationwide Subordination Staff

If you have any questions, please don’t hesitate to contact us.

- Nationwide Subordination Staff

During the last week of June we worked together with  Excel Funding in California to get a declined file approved where the lender was PNC Bank.  It was successfully approved  and delivered on July 12th.

- Brenda Vandenbrink,  Nationwide Subordinations  Support Staff

Working together in a collaborative manner is the ingredient and secret “sauce” that our customers appreciate the most.   Our testimonials are the real deal and are never solicited. Ever.

For PNC Bank Subordination  Requests or former National City loans (now handled by PNC Bank) you can amend the subordination within 30 days of the initial request for subordination.   If changes to the lender or an increase in loan amount is needed and you need a re-draw or amended subordination to reflect those changes after the 30 day period, then a new request and additional underwriting fee will apply.

In summary, if you need an amended subordination from PNC the following points are helpful:

• Increasing loan amount or lender change within 30 days of initial request?
  • Have not yet received subordination docs:  just notify us, all is fine.
  • Already received sub. docs:  must send original sub back to underwriting, overnight fees apply.
• Increasing loan amount or lender change after 30 days of initial request?
  • Requires new request (new 1003, 1008, updated title if necessary, updated appraisal if necessary)
  • Full fees and overnight delivery fees apply, again —bummer!
• Decreasing loan amount after already received sub. docs:  nothing needed.  Language in subordination says “not to exceed” x loan amount, thus you need to do nothing.  All is well.

Note:  this post is deemed to be accurate as of May 15th, 2011 but PNC can change their policy at any time.

For up to date inquiries or questions, please contact: support@nationwidesubordinations.com

Regardless of who the subordinating lender is for your transaction, most lenders require written authorization from the borrower for any third party to obtain a copy of the Note.

As a function of our work, we automatically provide our customers with an authorization form for the borrowers to sign authorizing the release of this or any other document required in connection with producing the Subordination.

-Nationwide Subordinations

Don’t put yourself in a pickle after you have received your Subordination by realizing that underwriting needs a copy of the Note and without it you cannot close your transaction.  Be pro-active and  ask your underwriter right away if they will need it.    Many times the requirement for a copy of the Note shows on the lender Commitment Letter so take the time to review it (we do as part of our pre-submittal audit).

I called yesterday, Dec. 29th, and confirmed this.  However, they did indicate that they were working to move them along quicker.    We will see.

Happy New Year everyone.   We appreciate your business and are working to continue providing the very best in serving your subordination needs.

- Nationwide Subordination Staff

• Submit your subordination request as early as possible in the lending process and do not lock your interest rates for anywhere near less than 30 days.   Short lock periods are a recipe for unhappy clients.
• November had Veterans Day which was observed by Banks being closed and next week is Thanksgiving.  This impacted turn times and produced more volume build-up for the lenders processing subordinations.   Thanksgiving and the Christmas season will potentially create more headaches unless volume is decreased leading up to Christmas and New Years.
• Common errors are found in the following:
  • Title Reports
    • recording dates missing
    • lender typos
    • Un-released/reconveyed loans
    • Proposed insured missing
  • Commitment Letter
    • Terms not complete (loan amount, rate and term)
    • Use of DU findings in lieu of traditional commitment is routinely rejected by lenders
  • 1003 & 1008
    • Wrong Social Security #’s
    • Incomplete Employment Information
• Other things we audit and catch on a regular basis is that the subordinating lender is incorrect from what was submitted (thus, we save many “rear-ends” by letting you know immediately so that you are spared from from loss of money and time.

Volume of subordination requests are high and it is very unrealistic to believe that they will be completed in a matter of a few days.     Many lenders have decent systems to underwrite subordinations and communication to track status, but others have ZERO follow up and customer service is non-existent—-trust us on that, we know.

Have a Blessed Holiday Season

“The real fire within the builders of America was faith – faith in a Provident God whose hand supoprted and guided them..”  – DWIGHT D. EISENHOWER

We have received multiple requests for Promissory Notes that may be required as an underwriting condition for a refinance transaction that involves PNC Bank.   While it is obviously best to get the Note from the borrower, if tradition holds true, most borrowers have “misplaced” it or don’t know which box it is in the cellar or attic.

Behold!  We have good news.   We have contacted our friends at PNC and you can receive your copies of Notes without too much trouble.  It involves two steps:

1)   Fax an authorization form over to PNC stating you have the borrower permission for them to release the document to you:   1-800-417-1527.

2)  Call back about an hour or so later.    Call 1-800-395-1983. Calling an hour or so later allows PNC’s system to update and show your authorization has been received.  The customer service staff at PNC can see your authorization and will then forward you a copy of the Note.

Have a great Fall season good friends  from every corner of the USA.

Nationwide Subordinations Staff.