Obama offers help for second mortgages

April 28th, 2009, 12:48 pm · 14 Comments · posted by Mathew Padilla

The Obama administration today unveiled a program to help homeowners with second mortgages by offering payments to the borrowers and their loan servicers for modifying loan terms.

Critics of previous government plans have said many struggling homeowners either bought a home with two loans during the housing boom or later took out a second mortgage. Thus, mortgage-aid plans focused on first liens only have left out many underwater borrowers.

The new program is designed to work with one previously announced for first mortgages. Ideally, lenders will cut payments on both first and second mortgages when a borrower demonstrates they are unaffordable. Read a fact sheet on the plan HERE.

Funding will come from $75 billion already set aside by the administration for housing.

Here’s what a government release said about incentive payments:

“Servicers can be paid $500 up-front for a successful modification and then success payments of $250 per year for three years, as long as the modified first loan remains current.”
“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.”

Here’s more on the modification options:

Under the Second Lien Program, when a Home Affordable Modification is initiated on a first lien, servicers participating in the Second Lien Program will automatically reduce payments on the associated second lien according to a pre-set protocol. Alternatively, servicers will have the option to extinguish the second lien in return for a lump sum payment under a pre-set formula determined by Treasury, allowing servicers to target principal extinguishment to the borrowers where extinguishment is most appropriate.

Also, the government would share the cost of reducing second mortgage payments. Here’s the steps for a lender/servicer to follow on an amortizing second (not interest-only) and what the investor in the mortgage gets:

“Reduce the interest rate to 1 percent;

“Extend the term of the modified second mortgage to match the term of the modified first mortgage, by amortizing the unpaid principal balance of the second lien over a term that matches 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;”

“The second mortgage will re-amortize over the remaining term at the higher interest rate(s); and”

“Investors will receive an incentive payment from Treasury equal to half of the difference between (i) the interest rate on the first lien as modified and (ii) 1 percent, subject to a floor.”

Lastly, the administration plans to combine the Hope for Homeowners effort into the more recent plan for first mortgages in which borrowers and servicers get incentive payments.

With Hope for Homeowners, note holders are supposed to accept a payoff below the current market value of the home, allowing the borrower to refinance into an FHA loan. But Hope has drawn little interest from banks or mortgage investors.

The change to Hope may require approval from Congress.

Here’s more from Treasury:

Under the changes announced today and, when evaluating borrowers for a Home Affordable Modification, servicers will be required to determine eligibility for a Hope for Homeowners refinancing. Where Hope for Homeowners proves to be viable, the servicer must offer this option to the borrower. To ensure proper alignment of incentives, servicers and lenders will receive pay-for-success payments for Hope for Homeowners refinancings similar to those offered for Home Affordable Modifications. These additional supports are designed to work in tandem and take effect with the improved and expanded program under consideration by Congress. The Administration supports legislation to strengthen Hope for Homeowners so that it can function effectively as an integral part of the Making Home Affordable Program.

In other news…

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jennychangf8 says:

April 28, 2009 at 1:21 pm

Mr. President, you NO longer have my vote!!!! Your plans are pushing me further and further away from owing a home which I CAN afford. Unlike those greedy people who bought home that they CANNOT afford!!!

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BeyondTheMargin.net says:

April 29, 2009 at 6:23 am

If at first you don’t succeed, try try again. That seems to be the government’s plan. Keep showering handouts and bailouts to all beggars ultimately debasing the value of savings and thrift. Might as well buy a new car every year and big screen TVs because in the end Obama will bail you out.

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Jo says:

April 28, 2009 at 1:33 pm

No deadbeat left behind it would appear.

sammy says:

April 28, 2009 at 4:32 pm

Those folks need help with their electricity and maid service too, don’t stop at the mortgage for goodness sake

SC2 says:

April 28, 2009 at 7:24 pm

Democraps crap on respnsible, hard working people who support the prosperity of this country. Dems love leeches of society.

joe says:

April 28, 2009 at 7:25 pm

This guy is a disgrace!!

OCJan says:

April 28, 2009 at 7:26 pm

Come on! This is just the first step. As all the rest of modified loans, these will also end in foreclosure. Obama, Pelosi an Reed might as well cut through the crap and just give the home to the low life that should have never been given a mortgage in the first place. A true example of the finest wok done by our trust worthy realtors and lenders. And they still lie about how great it is to buy ‘today’ as it won’t get any better.
The taxpayer is being done in by the Obama Change he ptomised…or wait…maybe it was the teleprompter that made those promises!!!

Wurst says:

April 28, 2009 at 7:30 pm

Dear Obama,

My $1600.00 a month BMW payment is killing me. Please help! I know I shouldn’t be able to afford it but I wanted it. Thanks

zacksmom says:

April 28, 2009 at 7:56 pm

It was “change” the people wanted and “change” they are getting. Next time it might be a good idea to elect someone with some experience rather than someone raised by a communist mother and indoctrinated with all of her left wing ideaologies. The way things are going the government will be taking over banks and not foreclosing on anyone. Looks like it will be like Russia here soon with all of the government owned housing. Just wait till they take away our free speech and press.

snarf says:

April 29, 2009 at 9:50 am

The government is already making great strides in taking control of business practices; dictating bonuses and salaries for workers. The unions will likely become much more powerful. Control of the press and free speech is already underway. Thousands gather for an anti-tax rally, and the LA Times ignores the story as it isn’t in line with their political agenda. It’s the new media trend…if a viewpoint isn’t in consensus with the agenda, the participants will be ignored, or personally attacked. On national media outlets I’ve heard “celebrities” call Miss California a “b*tch” simply because she opposes gay marriage; people who attend Tea Parties to protest rising taxes are labeled redneck racists who are really protesting because they are angry that a black man was elected President. Utter and complete insanity. I have no issue with gay marriage and could care less about the race or religious preference of the President, but would never personally attack someone because their viewpoint differs from mine. In a democracy shouldn’t everyone be allowed to have opinions without fear of personal humiliation, or dismissal?

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aspire says:

April 29, 2009 at 8:55 pm

Interesting article, I’ll be paying more attention to the MHA program. Thanks for the info.

-aspire

Bill-1a says:

April 29, 2009 at 9:45 pm

What a bunch of losers. Give this man and his administration a chance. Nothing that the Bush admin. did was very successful, except get us into this mess. Obama’s had100 days. You all gave Bush 2,920 days (eight years). Let’s have a little patience and see where all this falls. Of course I know that you all have all the answers, and are Wharton School of Business grads, but give this administration a little cushion time to either fail or succed. And yes Snarf, you should be allowed to have opinions without fear of personal humiliation or dismissal. And Snarf, you should also allow someone a chance to see if their ideas, programs, plans, etc. can work. Remember it is a democracy

snarf says:

April 30, 2009 at 5:52 am

“What a bunch of losers”.
“Of course I know that you all have all the answers, and are Wharton School of Business grads”.

Again, why resort to personal attacks when someone doesn’t share your viewpoint? You know nothing about me or my educational background. Also, for the record, I’m no fan of George Bush. I hope history judges Obama as a great President…but so far, I find many of this administration’s policies disturbing.

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STEVE says:

April 30, 2009 at 6:26 am

YOU GET SICK SO YOU CANT WORK 2 OR THREE JOBS OR YOUR JOB GET OUTSOURST TO CHINA SO YOUR INCOME IS LOWER AT YOUR NEW JOB AND YOU GET HELP SO YOU KIDS CAN EAT AND FINISH SCHOOL . BY OBAMA THAK GOD FOR HIM ANY ONE OF YOU THAT GETS IN A BAD SPOT WOULD LOVE THE HELP OR MABE YOU COULD WAIT FOR A CRISTIAN ACT OF KINDNESS FROM THESE GUYS ON HERE WHAT A BUNCH OF LOVING CARING PEOPLE THEY LOVE YOU ALL IN HELL

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