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Obama Second Mortgage Loan Modification Plan Failing

It’s been year since Obama administration announced a revolutionary plan to aid almost 2 million distressed homeowners modify their second mortgage loans, yet not one homeowner has received mortgage relief.  The Huffington Post reported that the second mortgage relief program has failed as part of the administration’s $75 billion anti-foreclosure initiative.  This plan was supposed to reward mortgage servicers to coordinate payment reductions on subordinate mortgage loans when the first mortgage is modified under the administration’s Home Affordable Modification Program.  Many real estate experts believe that addressing the second mortgage issue is essential in overcoming the foreclosure crisis.

The second mortgage relief plan was first announced last April. In August the Treasury Department released guidelines on how the 2nd mortgage program would work. Several months passed before any loan servicing even signed up. More than five weeks ago, Bank of America, the nation’s largest servicer with about three million second mortgage loans, signed an agreement to join, but a bank spokeswoman said the firm is still awaiting final guidelines from Treasury before proceeding. A Treasury spokeswoman said the firm could technically begin the process now.  On Thursday, Citigroup chief executive Vikram Pandit told the Congressional Oversight Panel why Citi has not signed up yet. “We’ve said to the Treasury we’re willing to work with them as to what this no equity loan modification program is.” Pandit said in response to a question from New York’s top bank regulator.

According to RealtyTrac, about three million homes were lost to foreclosure last year and 2010 looks to be worse, in part because so many distressed homeowners have 2nd mortgage loans. In April, the administration estimated that “up to 50 % of at-risk mortgages currently have second mortgages.”  The Obama administration noted:  Second mortgage loans contribute to the number of American homeowners unable to afford their housing payments. Even where a 1st mortgage payment may be affordable, the addition of a 2nd mortgage payment can increase monthly payments beyond affordable levels. In addition, second mortgage loans often complicate or prevent a loan modification agreement or mortgage refinancing for the 1st lien.  The Second Mortgage Program will help create a sustainably affordable mortgage payment for millions of homeowners who qualify for a 1st mortgage loan modification, yet still face challenges in affording their monthly payments because of a second mortgage.

Compounding the problem is that more than 11 million homeowners owe more on their home loan than their house is worth, putting them “underwater.” For homeowners who owe more on their mortgage loans than their home is worth, reducing the principal owed on the mortgage is more important than interest-rate cuts, because it gives homeowners back their home equity in the house and offers them incentives to continue making the home loan payments. Neiman noted to Pandit on Thursday that the second mortgage matter “has been a real disincentive that we are hearing from second mortgage lenders on making particularly principal reductions.”  According to Citi’s regulatory filings, about 28% of its first mortgages are now worth more than the underlying assets, along with about 42% of their second mortgage loans. Read the original article >

Posted in Foreclosure Prevention, Home Equity News, Mortgage News, Mortgage Relief, Second Mortgage Modification, second mortgage. Tagged with , .

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