How to Subordinate a CalHFA Junior Lien

CalHFA subordination policyCalHFA announced on November 29th, 2012 that recent legislation now permits the subordination of additional existing CalHFA junior loans if homeowners meet certain eligibility requirements.

This announcement is big news for homeowners stuck with high interest rate first mortgages, that have previously been unable to refinance due to CalHFA being unable to subordinate buyer assistance programs.

CalHFA Junior Loans Eligible for Subordination

  • California Homebuyer’s Downpayment Assistance Program (CHDAP)
  • CalHFA Housing Assistance Program (CHAP)
  • High Cost Area Home Purchase Assistance Program (HiCAP)
  • Extra Credit Teacher Program (ECTP)
  • Homeownership in Revitalization Areas Program (HIRAP)

CalHFA Subordination Eligibility

To be eligible, all of the following minimum requirements must be met:

  • You must be able to demonstrate a hardship – see explanation below
  • Subordination is required to avoid foreclosure – see explanation below
  • New first mortgage meets Agency underwriting requirements

CalHFA Hardship Requirements

Demonstrating a financial hardship must be explained and documented.

Examples of financial hardship include, but are not limited to:

  • Temporary unemployment has caused a significant delinquency or new employment has resulted in less monthly income.
  • Employer reduced borrower’s pay (Overtime eliminated, regular hours or base pay reduced).
  • One of the borrower’s or wage earner’s incomes has been reduced or eliminated due to involuntary job loss, death, incarceration, divorce or separation.
  • One of the borrower’s or wage earner’s incomes has been eliminated or reduced as a result of suffering a permanent or short-term disability or serious illness.
  • Self-employed borrower has suffered a documented decline in business earnings.
  • An increased monthly payment on an existing first loan is beyond that which the borrower can reasonably afford.

Examples of acceptable documentation include, but are not limited to: Current pay stubs, two years of W-2’s, two years of Federal tax returns, unemployment notices, EDD Benefits Letter, letter from employer, legal divorce or separation
papers, etc.

Foreclosure Avoidance Requirements

Homeowner must meet one or more of the following requirements:

  • Using one of the following first mortgage refinance programs designed to avoid  foreclosure: Fannie Mae’s Refi Plus, FNMA DU Refi Plus or Freddie Mac’s Relief  Refinance Mortgage.
  • 1 st Mortgage currently delinquent more than 60 days.
  • Insufficient funds to pay off existing CalHFA junior loan balance and still maintain  sufficient reserves in savings accounts (Two months of PITI).
  • Lower payment to a more sustainable housing debt-to-income ratio of between 31– 36%.

 CalFHA Property Eligibility Criteria

The property must be your primary residence.

Final Thoughts

This is great news for the many homeowners that took advantage of CalHFA first time buyer and buyer assistance programs to purchase their home.

Working with a mortgage lender that specializes in CalHFA financing is going to be the secret to getting through the hurdles and hoops that need to be navigated to successfully refinance around subordinate financing.

If you have any questions about your specific situation, feel free to ask privately or publicly below, live chat or call us anytime.


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