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After realizing that even a modification on a first mortgage won’t help some people if their second mortgage is still too high, the government expanded the Making Home Affordable loan modification program last week. The program was updated to cover second mortgages and liens. I know this was something that a lot of people had questions about when I posted about the topic before:

Reducing Payments On Second Mortgages

Here are the details on the second mortgage loan mod program from the government’s website:

For amortizing loans (loans with monthly payments of interest and principal), the government will share the cost of reducing the interest rate on the second mortgage to 1 percent. Participating servicers will be required to follow these steps to modify amortizing second liens:

Reduce the interest rate to 1 percent

Extend the term of the modified second mortgage to match the term of the modified first mortgage.

Forbear principal in the same proportion as any principal forbearance on the first lien, with the option of extinguishing principal under the Extinguishment Schedule.

After five years, the interest rate on the second lien will step up to the then current interest rate on the modified first mortgage, subject to the Interest Rate Cap on the first lien, set equal to the Freddie Mac Survey Rate.

For interest-only loans, the government will share the cost of reducing the interest rate on the second mortgage to 2 percent. Participating servicers will be required to follow these steps to modify interest-only second liens:

Reduce the interest rate to 2 percent.

Forbear principal in the same proportion as any principal forbearance on the first lien.

After five years, the interest rate on the second lien will step up to the then current interest rate on the modified first mortgage, subject to the Interest Rate Cap on the first lien, set equal to the Freddie Mac Survey Rate.

The second lien will amortize over the longer of the remaining term of the modified first lien or the originally scheduled amortization term, with amortization to begin at the time specified in the original contract.

Updated Incentives And Other Details

The Second Lien Program will have a pay-for-success structure similar to the first lien modification program. Borrowers can receive success payments of up to $250 per year for as many as five years. These payments will be applied to pay down principal on the first mortgage, helping to build the borrower’s equity in the home.

In addition to incentives for modifying second liens, lenders can also receive larger incentives to just extinguish the second lien altogether. The government has put out a fact sheet/table to give details on the amounts lenders can receive. Details can be found in the government’s fact sheet.

Links And Resources

Here is another resource talking about the updated program.