Back in April, the Obama Administration announced an update to the Make Home Affordable Program with regards to second mortgages. In an effort to keep people in their homes, the Second Lien Program offers banks & investors incentives to provide interest rate and monthly payment reductions.
Depending on whether your second mortgage is an amortizing loan or an interest-only loan, the second mortgage can be modified to as low as one percent (1%), but will reset to current market rates within five (5) years subject to the Interest Rate Cap on the first lien and equal to the Freddie Mac Survey Rate.
Extinguishing a Second Mortgage
As an alternative the payment reduction on second mortgages, homeowners may be able to have their second mortgage extinguished in exchange for larger payments made to the bank/investor(s) based on a pre-set formula of Debt-To-Income Ratio, Loan-to-Value Ratio, and whether the balance is more than 180 days overdue.
What Does This All Mean?
While the Second Lien Program does provide some relief to homeowners and clarifies guidelines to banks/investors for modifying loans, the banks & investors themselves still have to approve the loan modification even with the incentives provided to them.
I’ve written previously about loan modifications. No doubt there will be companies out there guaranteeing to extinguish your second loan. Be wary of such companies, especially if they ask for money up front, and perform your due diligence when selecting a company to modify your loan, if you are not doing it yourself.
Links for Further Reading
United States Treasury Second Lien Program Press Release April 28, 2009
Making Home Affordable Program Update Fact Sheet
Related posts:
- Loan Modification Tips: Avoid Becoming a Victim
- More Loan Modification Madness: 133 Loan Mod Companies Targeted by CA Attorney General
- LA Times: A Quick Guide to Loan Modification
- Are You Getting the Correct Advice From Your Real Estate Agent About Your Short Sale?
- Beware of Loan Modification Companies
