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The Honolulu Advertiser
Posted on: Monday, April 26, 2010

2nd-mortgage modifications gaining traction

USA Today

The Obama administration's initiative to help homeowners obtain modifications of second mortgages is getting off the ground.

Just this month, Bank of America became the first major lender in the program to send letters offering modifications to home equity loan customers struggling with their loans.

Citigroup, JPMorgan Chase and Wells Fargo joined the program in March, when updated guidelines were issued by the government.

Those banks hold about half of the second liens in the nation.

The program, first introduced in August, is aimed at overcoming an impediment to permanent modifications of first mortgages.

Holders of first mortgages have been reluctant to take losses unless the holder of the second-lien mortgage does, too. More borrowers are staying current on their second mortgages, however, which has made those lenders less inclined to take losses.

"This is a huge concern for consumers," says Marietta Rodriguez, national director for homeownership and lending at national nonprofit NeighborWorks America. "You have two financial institutions trying to get a payment out of you. How do you respond?"

The government's second-mortgage program, called 2MP, offers incentives to borrowers, mortgage servicers and investors to modify second mortgages. How it works:

• When a borrower's first loan is modified under the federal program, known as the Home Affordable Modification Program, and the servicer of the second loan is also a participant in HAMP, that servicer must offer to modify the borrower's second lien.

• Servicers can stretch the term of the second loan to 40 years.

• Second-lien lenders must defer the payment of the same proportion of principal that was deferred or forgiven on the first loan.

The second loans also must have originated on or before Jan. 1, 2009, to be eligible for a modification.

Modifying a mortgage with a second lien can be difficult because of the additional parties involved.

A second lien may be held by another servicer or investor, and getting all parties to agree on interest rate reductions or other steps to ease borrowers' monthly payments can be time-consuming or difficult. The government program aims to make the process easier.