Saying that half of at-risk mortgages have second liens that complicate the process of modifying them to prevent foreclosure, the Obama administration today announced that the government will share in the cost of lowering payments on second mortgages and provide incentive payments to loan servicers who go along.

The new Second Lien Program is designed to work in tandem with first-loan modifications made under the Making Home Affordable Program. Like Home Affordable first loan modifications, the government will share in the cost of reducing payments on a borrower’s second mortgage, and pay loan servicers incentives for making successful modifications.

On amortizing loans with monthly payments of interest and principal, for example, the government will share in the cost of reducing the interest rate on the second mortgage to 1 percent for five years.

Servicers can be paid $500 up-front for a successful modification, and $250 per year for three years as long as the modified first loan remains current. Borrowers can receive payments of up to $250 per year for up to five years, with the payments applied to pay down principal on their first mortgage.

In announcing the Second Lien Program, the administration said up to 1 million to 1.5 million homeowners may be eligible, or as many as half of the 3 million to 4 million at-risk homeowners targeted by the Home Affordable loan modification program.

In a separate move, the administration said it wants to beef up the Federal Housing Administration’s (FHA) Hope for Homeowners loan refinancing program and incorporate it into the Making Home Affordable program.

Loan servicers would be required to evaluate borrowers in trial Home Affordable loan modifications for eligibility for Hope for Homeowners refinancing, and offer it to them if they qualified.

The Hope for Homeowners program requires participating lenders to write down loan principal to make payments more affordable to borrowers. So far, there have been few takers. The Obama administration said it would seek legislation that would allow FHA to reduce the fees paid by borrowers, increase flexibility for lenders to refinance troubled loans, and permit borrowers with higher debt loads to qualify.

The plan is for the Treasury Department or Fannie Mae and Freddie Mac to purchase special Hope for Homeowners mortgage-backed securities, providing secondary market liquidity for new Hope for Homeowners loans.


What’s your opinion? Leave your comments below or send a letter to the editor.

Show Comments Hide Comments


Sign up for Inman’s Morning Headlines
What you need to know to start your day with all the latest industry developments
By submitting your email address, you agree to receive marketing emails from Inman.
Thank you for subscribing to Morning Headlines.
Back to top
Log in
If you created your account with Google or Facebook
Don't have an account?
Forgot your password?
No Problem

Simply enter the email address you used to create your account and click "Reset Password". You will receive additional instructions via email.

Forgot your username? If so please contact customer support at (510) 658-9252

Password Reset Confirmation

Password Reset Instructions have been sent to

Subscribe to The Weekender
Get the week's leading headlines delivered straight to your inbox.
Top headlines from around the real estate industry. Breaking news as it happens.
15 stories covering tech, special reports, video and opinion.
Unique features from hacker profiles to portal watch and video interviews.
Unique features from hacker profiles to portal watch and video interviews.
It looks like you’re already a Select Member!
To subscribe to exclusive newsletters, visit your email preferences in the account settings.
Up-to-the-minute news and interviews in your inbox, ticket discounts for Inman events and more
1-Step CheckoutPay with a credit card
By continuing, you agree to Inman’s Terms of Use and Privacy Policy.

You will be charged . Your subscription will automatically renew for on . For more details on our payment terms and how to cancel, click here.

Interested in a group subscription?
Finish setting up your subscription