Loan Modification Guide to 2nd Mortgages

In today’s difficult economy, what was a few years ago the house of your dreams, may today be a ball and chain. Thousands of homebuyers that purchased a home using “piggy-back” mortgages such as on 80/10/10’s, 80/15/5’s and 80/20’s may be having a very tough time making the monthly payment. What is a “piggy-back” mortgage you ask? Well that is the 2^nd mortgage that was taken out to either eliminate or reduce a down payment and not have to pay private mortgage insurance even though you were not putting a 20% down payment from your personal resources. For example, in an 80/20, 80% of the purchase price was financed on the 1^st mortgage and the remaining 20% on a 2^nd mortgage. The same principle applies to 80/10/10’s and 80/15/5’s except with respective down payments of 10% and 5%.

Second mortgages can be burdensome because they can substantially complicate or prevent 1st mortgage modifications and potential refinances. But in the boom days of real estate, many of the 2^nd mortgages were made at much higher interest rates than the 1^st mortgage, so that even if the payment on the 1^st mortgage is affordable, the second mortgage can be a tremendous burden. This is especially true if the 2^nd mortgage was structured as a:

1) Balloon - a type of mortgage where the payment is computed on an amortization term that is longer than the actual term of the loan and therefore at the end of the loan term, the balance “balloons” or is due all at once.

2) Negative Amortization loan – where a portion of the interest is recapitalized within the loan so that the balance grows instead of declines every month.

3) High Margin loan- where the interest was based on an adjustable rate mechanism that used above average margins so that even when the financial index that the rate was pegged to declined, the rate still increased.

But there is hope for homeowners. Under a program known as the 2^nd Lien Modification Program (2MP) which is administered in tandem with the Home Affordable Modification Program (HAMP), you may be able too lower the payments on your 2^nd mortgage. This innovative program allows homeowners, their mortgage servicers and investors to reap potential incentives for successfully modifying a 2^nd mortgage. Incentives can also be received by servicers and investors if they forgive the debt that you owe on a 2^nd mortgage.

There are eight critical conditions for participation in this program.

(1) Your 1^st mortgage must have already been modified through the HAMP and you must provide documentation of said modification to the servicer of your 2^nd mortgage who must also be participating in the program.

(2) Your mortgage must have been originated prior to January 1^st of 2009.

(3) Prior to modification, the balance cannot be less than $5,000 or the monthly payment less than $100.

(4) Your mortgage cannot have already been modified under 2MP.

(5) Your mortgage cannot be behind a second mortgage (i.e. a third mortgage) nor can it be an equity line of credit in first position.

(6) Your mortgage cannot be interest free or allow for no payments to be due until the first lien is due.

(7) The servicer of your 2^nd mortgage must be in possession of a fully executed 2MP modification agreement or a trial period plan by December 31, 2019

(8) Your 2^nd mortgage is not insured, guaranteed or held by a Federal government agency such as FHA, HUD, VA or USDA

If you do qualify under the terms above, it would be well worth it to pursue 2MP as the incentives are quite attractive. Some of the benefits that you may expect with 2MP under the consultation and approval of the underlying investor that owns the 2^nd mortgage are:

• Forbearance on the 2^nd mortgage equal to the amount of principal that was deferred through forbearance on the 1^st mortgage.
• Reamortization of the 2^nd mortgage to a term as long as 40 years.
• Recalculation of the interest as low as 1% on 2^nd mortgages that are fully amortizing.
• Recalculation of the interest as low as 2% on interest-only 2^nd mortgages.
• Based on the Principal Reduction Alternative program, if the principal was forgiven on the first lien a servicer must forgive the same proportion on the second lien.
• At the discretion of the servicer, all of the second lien may be forgiven.

So what is the first step? First, Go over the eight critical conditions and determine if you can check off conditions 1-7. Second, find out if your servicer participates in 2MP. Below is a list of participating lenders:

List of Participating Servicers
Bank of America (including Countrywide)
BayView Loan Servicing, LLC
Chase (including EMC and WaMu)
Citi Mortgage, Inc.
Community Credit Union of Florida
GMAC Mortgage, LLC
Greentree Servicing, LLC
iServe Residential Lending, LLC
iServe Servicing, Inc.
National City Bank
Nationstar Mortgage, LLC
OneWest Bank
PennyMac Loan Services, LLC
PNC Bank
Residential Credit Solutions
Servis One dba BSI Financial Services
Wells Fargo (including Wachovia)

Third, if your servicer is on the list, contact your servicer regarding the 8^th condition. (If you do not see your lender on this list you can do a search on http://makinghomeaffordable.gov/contact_servicer.html.)

If you pass all eight conditions, then begin dialogue with the 2^nd mortgage servicer on what the next steps are to begin 2MP. If you do not feel sufficiently comfortable with the process and need more information before contacting your servicer, contact a HUD approved counselor at no cost by going to http://makinghomeaffordable.gov/counselor.html or you can also call the HOPE Hotline at 1-888-9954673.