New Second Mortgage Modifications


Hello, and welcome to Your Money 2.0. I’m Thomas Fox, Community Outreach Director
at Cambridge Credit Counseling. The Obama Administration’s Making Home Affordable
program has drawn a fair amount of criticism since it was announced. However, with 6 million families facing foreclosure
in the coming years and countless others struggling to stay current on their mortgage payments,
help was needed. The plan’s detractors focused on the omission
of second mortgage modifications. Why should they be included? Second mortgages often complicate or prevent
the modification or refinancing of a first mortgage because borrowers require permission
from any second lien holder before an adjustment can be made. Now that 75% of mortgage servicers have begun
participating in the Making Home Affordable program, President Obama recently announced
that his housing initiative was ready to expand to include second mortgage modifications. The Administration believes that ensuring
a homeowner’s ability to stay in their home is critical to stabilizing the housing market. Once that’s achieved, the logic is that
the overall financial system will recover in turn. Given the popularity of second mortgages,
it stands to reason that they’ve been included in the Making Home Affordable program. This new provision will help those with amortizing
loans and those with interest-only loans. For traditional amortizing loans, or loans
with monthly payments consisting of interest and principal, the administration will share
the cost of reducing the interest rate on the second mortgage to 1%. Participating servicers will be required to
follow specific steps to modify such loans. First, and most important, servicers must
be willing to reduce interest rate to 1 percent. They’ll also need to extend the term of
the modified second mortgage to the term of the modified first mortgage. After five years, the interest rate on the
second lien will increase to the current interest rate on the modified first mortgage, subject
to an interest rate cap. For interest-only loans, the administration
will share the cost of reducing the interest rate on the second mortgage to 2%. Similarly, servicers of interest-only mortgages
will need to adhere to guidelines similar to those I just outlined for amortizing loans. Alternatively, servicers will have the option
to “extinguish” the second lien in return for a lump sum payment from the government,
according to a pre-set formula determined by the Treasury Department. Unfortunately, because the formula equates
to just pennies on the dollar, only time will tell if many servicers agree to extinguish
these liens. The administration’s second mortgage initiative
will be funded out of $50 billion in financial rescue money that has already been allocated. As in the original plan, participation is
encouraged through financial incentives that can be paid to servicers. Mortgage companies would receive $500 for
each modified loan, plus $250 a year for three years, providing the borrower doesn’t default. You can learn more about the Making Home Affordable
program by visiting www.makinghomeaffordable.gov. Well, that’s it for this edition. We welcome your feedback and ask for your
thoughts and suggestions by e-mailing us at [email protected] Thank you for watching. Until next time, I’m Thomas Fox for Cambridge
Credit Counseling.

Paul Whisler

One Comment

  1. @charlesdean03 the homeowners (VICTIMS) will. these 2nd mortgage lenders they claim to be are scams. my mortgage was paid off in 1993. i'm still getting Emails & phone calls informing me about mortgage modification & i still owe. i tell them to stop bothering me & i hang up. they keep coming. this guy is a liar. pres. obama never said things like that. we need to be careful. why would a third party willing to help ?

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