It’s nice to see that the Obama Administration is addressing the problems of its original foreclosure prevention program and making it more effective. One of the big problems with the original plan to stabilize the housing market, is that it did not address home-equity loans and other second mortgages and according to Credit Suisse Group, about half of seriously delinquent borrowers have a second mortgage.
So what is the new plan proposing? According to Ruth Simon of the Wall Street Journal, “Under the revised plan, mortgage-servicing companies that participate in the loan-modification program for second liens must automatically modify the second mortgage when the first mortgage is reworked. The government will share in the cost of reducing the interest rate on second mortgages for five years. As an alternative, it will pay holders of second mortgages to extinguish that debt.”
In addition, the government is offering a friendly gesture for the cooperation of the mortgage servicers: “Mortgage servicing companies that modify second mortgages will receive an upfront payment of $500 and additional payments of $250 a year for up to three years for successful modifications of home-equity loans and other second mortgages. Borrowers who remain current on the modified loan would receive payments of $250 a year for up to five years that would be used to pay down the balance of their first mortgage.” So basically the second mortgages are to be dealt with almost the same as with first mortgages. Makes sense. Why no one thought to involve second mortgages in the original program is beyond me, but like I said, it’s nice to see that the Obama Administration was able to recognize where they went wrong and make corrections. And according to administration officials, they estimate that by addressing second mortgages could help as many as 1.5 million homeowners.
By Andrew Brentan