Q: I am currently refinancing my mortgage with the same lender. I have a second mortgage with a different lender.
I have been asked to fill out a subordination request form. The bank I am refinancing with told me my second lender is asking me to pay $250 to have them process the subordination agreement.
Actually, the second lender is charging my new primary lender and not me, but the new primary lender appears to be passing the buck to me and is adding this to my closing costs.
Is this legal? It looks like another scam by big banks to bleed money from consumers.
A: Here’s what you should keep in mind: Your second lender does not have to agree to a subordination request.
When you pay off your loan with your primary lender, the second lender steps up in the lien line and becomes your new primary lender. Your new first lender will not give you the loan you are requesting unless they have first dibs on your property in case you default in your payments to them. If your loan with the second lender has no loan balance and you have no need for that loan, you can simply cancel that account and avoid paying the fee.
For a fee of $250, your second lender has agreed to take its place behind your new primary lender.
The other reason you’re being charged is that you’re asking your second lender to prepare documentation that they otherwise would not have to prepare. Is the fee reasonable?
Are you being “bled to death” with refinance costs and fees? Perhaps. But it’s common for second lenders to charge a subordination fee and it’s even more common for the primary lender to pass that cost along to you along with all other costs associated with the loan process.
Given the fees that some lenders are charging, that $250 subordination fee doesn’t seem too high if you are able to keep the second loan you have, particularly if you could not get the rate you currently have on that loan anywhere else.
But in the end, you don’t have much choice – if you don’t pay up, there won’t be a subordination agreement and you won’t be able to refinance.
If it makes you feel any better, I paid a subordination fee of about the same amount when I refinanced my loan.