What does subordination mean?
What does subordination mean and what does this mean when applying for refinancing or a HARP loan?
What does subordination mean? It literally means to place something in a lower rank or position. What does this mean when a homeowner is attempting to refinance a home? If a homeowner is attempting to refinance a first mortgage and has a second mortgage or a HELOC (Home Equity Line of Credit) or both, the refinancing mortgage (primary or first lien) will insist on maintaining their position in the event of a default. If the homeowner refinances the first lien (Mortgage), without a subordination agreement, the second mortgage or if there was a HELOC, would move ahead of the newly obtained refinance mortage. (This, of course, could be subject to the argument of equitable subrogation. However, for the purposes of defining subordination and applying the principle generally to a homeowner, we will not delve into the legal argument of equitable subrogation.) The second mortgage and/or any HELOC would be older and the previous first lien holder would have been satisfied, removing it from its position. Therefore, in order to maintain the position originally occupied by the original first lien holder, the refinancing lien holder will request the remaining lien holders to subordinate their position to it.