New Efforts For Modifications May Mean Write Downs On Home Equity Loans

[Mar 26, 2010.]

 

It has been more than a year since the government launched The Home Affordable Modification Program. The goal of the program is to make a dent in the number of homes that will go through foreclosure by offering qualified home owners' a chance to change the terms of their current home loans. The government estimates that between 3 and 4 million home owners could qualify for a modification. So far, only about 170,000 have been helped.

One reason why modifying has been such a failure is because it doesn't adequately address the homeowners who have second mortgages or home equity loans. Having a second mortgage to deal with makes an already tough process doubly complicated. Many analysts have said from the beginning that writing down a home loan in second position makes the most sense.

Homeowners needs to have skin in the game or they may just walk. Borrowers need to have equity so that they have something to lose if their home goes into foreclosure. By writing down a second mortgage, borrowers will likely have something to lose again. For example, if the home's current value is $100,000 and there is a first mortgage of $98,000 and a home equity loan of $12,000, the bank could write the home equity loan down to $2,000. This would mean the home owner was at least even again.

The government's efforts to improve the success of The Home Affordable Modification program seemed to be aimed more accurately in the direction of second mortgages. Dealing with home equity loans and other second mortgages is essential to the success of the program. The government has access to the best economic information, so it is reasonable to assume that it will address this issue. It is just frustrating for the underwater homeowner to see progress made with such baby steps.

If you have equity in your home, consider using it for home improvements, college tuition, or debt consolidation. Home equity loans are among the cheapest financing available. Mortgage lenders are available to answer your questions. Talk to a home loan specialist today.

 

About Author:

Renee Morgan has been a loan officer for over eighteen years. She is also a freelance writer and guest expert for radio and TV.