Making Home Affordable | 2nd lien holders
The Treasury Department has announced an expansion of its Making Home Affordable Program aimed at encouraging loan modifications for struggling homeowners with second liens. The original version of the program did not address situations where homeowners had second liens, such as where a purchaser used a piggyback second mortgage to reduce the need for a downpayment.
Second mortgages can create significant challenges in helping borrowers avoid foreclosure, even when a first lien is modified, Treasury found. Treasury estimates that up to 50% of at-risk mortgages have second liens. By offering homeowners a way to lower payments on their second, Treasury said it may potentially reduce payments further for up to 1 to 1.5 million homeowners with second mortgages.
Under the new program for second liens, when a modification is initiated on a first lien, servicers participating in the second lien program will automatically reduce payments on the associated second lien according to a pre-set protocol. Treasury will enter into agreements with second lien holders to reduce interest rates for five years to 1% on fully-amortizing second liens and 2% for interest-only seconds.
Treasury will also pay second lien servicers for modifying a loan and a
bonus for each year the homeowner stays current on the payments
As an alternative, servicers will have the option to extinguish the second
lien in return for a lump sum payment under a pre-set formula determined by Treasury in cases where extinguishment is most appropriate.
Under the plan, whenever first mortgage holders cut a borrower’s principal
balances by a percentage of the loan amount, second lien holders will be
required to reduce balances owed by a similar percentage. Stressed homeowners with second liens should call the servicer of the
lien to see if help is available under the program. © 2007, Real Estate Information Services, Capitol Assets & Choice Finance®