Home Equity Lenders Block Progress on Mortgage Relief

[Sep 23, 2009.]

 

As the federal government continues to offer mortgage relief through its Hope for Homeownersprogram, homeowners are encountering roadblocks with their home equity loans and home equity lines of credit (HELOCs). In order for a primary mortgage loan to be refinanced through the program, subordinate lenders must agree to release their liens against the property securing the refinance. Many banks and financial institutions are refusing to release their liens, or are asking for more compensation than the government is willing to pay them for releasing subordinate liens. As a result, fewer than 100 mortgages have been refinanced through the Hope for Homeowners program. The government is revamping the Hope for Homeowners program, and expects to gain more cooperation from subordinate lenders.

Need for Mortgage Relief Critical

Moody's Economy reports that nearly 16 million homeowners owed more on their first mortgages than their homes were worth during the second quarter of 2009; this represents about one third of all homeowners who have a first mortgage. Unless the stalemate between the government and home equity lenders ends, many people owing more on their homes than their currently worth may not be able to refinance under the Hope for Homeowners program. Timing is especially important with mortgage rates nearing historic lows; homeowners could potentially benefit from low rate mortgage refinance loans and other loss mitigation programs if only their home equity loans didn't stand in the way.

Home Equity Loans: What's the Problem?

First mortgage lenders require subordinate liens including home equity financingto release their liens against your home for maintaining first position in the "chain of title" to your home.If you have other loans against your home when the new documents for your primary mortgage loan are recorded, the existing liens would take priority. This is more than a "me first" argument, as the lender in senior position has the power to eliminate subordinate liens if it forecloses. If you owe more than your home is worth, and want to avoid foreclosure, advise your lender of your situation and provide the name and contact information for your home equity lender. Chances are if you owe more on your first mortgage than your home is worth, your home equity lender may agree to release its lien, as they have little hope of collecting payment if your primary lender forecloses.

 

About Author:

Karen Lawson is a freelance writer with extensive experience in mortgage banking and home loan loss mitigation programs. She holds BA and MA degrees in English from the University of Nevada, Reno.