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Help is on the way for loan mods that include second mortgages
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Financially stressed homeowners looking for loan modifications may be getting some help from the Obama administration. With second mortgages and “piggyback” financing have been among the biggest impediments to many mortgage modifications, a plan outlined last week promises cash incentives through the Treasury Department to subsidize lenders who lower troubled home owners' monthly payments on second mortgages and credit lines.
This is an important development, since the real estate feeding-frenzy years resulted in lots of piggyback plans that permitted cash-strapped homebuyers who couldn't afford down payments and closing costs to buy houses by using a second loan to make up the difference.
The Obama second lien modification program has morphed from the $50 billion program outlined in February (dealing with first mortgage loans only) to this one, where it will now deal with both first and second loan financing to alter the payment terms of an estimated three to four million distressed mortgages heading for foreclosure.
In order to accomplish this, the Treasury will enter into agreements with second lien holders to reduce interest rates to just one percent on fully-amortizing seconds and to two percent for interest-only seconds, for the next five years. They will incentivize cooperating lenders $500 for each second lien they modify, plus $250 a year for each year the homeowners stay current on payments. They may also be offered a lump-sum cash payment from the government to cancel the second-lien debt altogether.
Homeowners who want to learn more about participating in the new program should contact their second loan servicer as soon as possible. Or click here for more information from the Treasury Department.
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