Some lenders block ability to refinance

Whittaker's broker, Joseph Liberto, co-owner of Immediate Mortgage Inc. of Ijamsville, called National City's action "absolutely outrageous. Here we have our (federal and state) governments trying to help out people who are facing big payment increases, and we've got lenders refusing to cooperate -- even when it makes sense for everyone involved."

The change at National City illustrates how declining market conditions in many parts of the country are having unanticipated side effects on borrowers with second liens.

When property values were soaring, requests for subordination were rarely denied if homeowners had decent payment histories. But with prices depreciating in many markets, banks are worried that, even if customers have sterling credit, the bank's security interest in a property may be whittled away.

Take this hypothetical example: Say the owner of a $300,000 house had a $200,000 first mortgage and a $50,000 second -- total debt equal to 83 percent of property value. But if house prices drop and the market value of the property slips to $265,000, now the total debt equals 95 percent. The second mortgage holder is likely to lose money in a foreclosure.

Bottom line: If you've got a second mortgage and need to refinance, the second lien holder could stand in the way. Your main option after that: Qualify for a new first mortgage big enough to pay off the second.

Robert Whittaker might be able to swing that, but his rock-bottom refi rate could be gone forever.kenharney@earthlink.net.