The USA Today reported that the Obama administration’s initiative to help homeowners obtain modifications of second mortgages is getting off the ground. The program is aimed at overcoming the impediment to permanent modifications of first mortgages.
The government’s second mortgage program, called 2MP, offers incentives to borrowers, mortgage services and investors to modify second mortgages. Here is how it works:
– If the first loan is modified under HAMP, and the servicer of the second loan is the same as the first, then the servicer must offer to modify the second loan.
– Servicers can stretch the term of the second loan to 40 years.
– Second lien lenders must defer the payment by the same proportion as that of the 1st.
– The second loan also must have been originated on or before Jan 1, 2009, to be eligible for a modification.
Generally, modifying a mortgage with a second lien can be more difficult because of the additional parties involved. While this program is expected to reach up 1.5 million homeowners who are struggling to afford their mortgage payments, there are an estimated 19 million residential junior liens, with an average balance of $57,000 as of January, according to First American Core Logic. Moreover, up to 50% of at risk mortgages have second liens, according to the Treasury Department. “First lien holders holders become more reluctant to do principal reduction because of the second lien”, says Jack Schakett, loss mitigation strategies executive at Bank of America.