Home Equity Loans Affect Loan Modifications and 125% Refis

[Sep 11, 2009.]

 

Loan Modifications and 125% Refis Could Fail Due To Second Liens

The Hope For Homeowner's programs include provisions for loan modifications and 125% loan to value refinances.  Both of these programs aim to assistant distressed homeowners and hopefully prevent foreclosures.  Home Equity Loans and other second mortgage liens have been causing problems and slowing progress. Laurie Goodman, analyst for Amherst Securities, is one of the top analysts in the mortgage industry.  She warned that home equity lines and other second liens would cause many attempts to help homeowners in distress to fail. Read this related article for more on Laurie Goodman.

Second Lien Holders Want To Wait

Second lien holders are under no obligation to cooperate with a first lien modification or to subordinate to a 125% refinance.  Many of the investors of second mortgages have felt they would rather wait out a housing recovery.  Just like the IRS will wait a lifetime to collect back taxes, the second lien holders might choose to wait years to collect the balance due on a home equity loan. Read this related article for more information.

FDIC Recommends Loan Modification Without Regard To Second Lien Holders

The Federal Financial Institutions Examinations Council recommended to the FDIC to push ahead with first lien modifications without concern for the second lien holders. According to the FDIC's Financial Institution Letter (FIL-45) dated August 6, 2009,   "A servicer's decision to modify the first lien mortgage should not be influenced by the modification's potential impact on the subordinate lien loan and vice versa. Any ownership interest in the subordinate lien cannot be a consideration." Read this related article for more information.

Most Recent Statement From Making Home Affordable

Michael S. Barr is the Assistant Secretary for Financial Institutions.  In his written statement on September 9, 2009 given to the House Financial Services Committee, there is no mention of the problems being caused by the Home Equity Lines and other second mortgages. The letter highlights the accomplishments realized thus far.  Home equity lines and second mortgages are now the 400 lb. gorilla in the room. The issue went unresolved from the beginning and has done nothing but cause headaches for first lien modifications and the 125% refinance.

 

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.