Help may arrive for second mortgages, but don’t count on it. Short Selling your Orlando area home may still be your best option
The Obama administration’s initiative to help homeowners obtain modifications of second mortgages is getting off the ground. Just this month, Bank of America became the first major lender in the program to send letters offering modifications to home-equity loan customers struggling with their loans. Citigroup, JPMorgan Chase and Wells Fargo joined the program in March, when updated guidelines were issued by the government. Those banks hold about half of the USA’s second liens.
The program, originally introduced in August, is aimed at overcoming an impediment to permanent modifications of first mortgages. Holders of first mortgages have been reluctant to take losses unless the holder of the second-lien mortgage does, too. More borrowers are staying current on their second mortgages, however, which has made those lenders less inclined to take losses. “This is a huge concern for consumers,” says Marietta Rodriguez, national director for homeownership and lending at national non-profit NeighborWorks America. “You have two financial institutions trying to get a payment out of you. How do you respond?”
The government’s second-mortgage program, called 2MP, offers incentives to borrowers, mortgage servicers and investors to modify second mortgages. How it works:
• When a borrower’s first loan is modified under the federal program, known as the Home Affordable Modification Program (HAMP), and the servicer of the second loan is also a participant in HAMP, that servicer must offer to modify the borrower’s second lien.
• Servicers can stretch the term of the second loan to 40 years.
• Second-lien lenders must defer the payment of the same proportion of principal that was deferred or forgiven on the first loan.
The second loans also must have originated on or before Jan. 1, 2009, to be eligible for a modification.
Modifying a mortgage with a second lien can be more difficult because of the additional parties involved.
A second lien may be held by another servicer or investor, and getting all parties to agree on interest rate reductions or other steps to ease borrowers’ monthly payments can be time-consuming or difficult. The government program aims to make the process easier.
The number of homeowners who will get assistance is limited.
While the program is expected to reach up to 1.5 million homeowners who are struggling to afford their mortgage payments, there are an estimated 19 million residential junior liens, with an average balance of $57,000 as of January, according to First American CoreLogic.
Up to 50 percent of at-risk mortgages have second liens, according to the Treasury Department.
Even with the incentives the government is offering mortgage lenders to modify second mortgages, they could still prove to be an obstacle as pressure grows to reduce borrowers’ loan principal.
“First-lien holders become more reluctant to do principal reduction because of the second” lien, says Jack Schakett, loss mitigation strategies executive at Bank of America. “Everyone is calling for doing more principal reduction. Second liens will be a problem.”
If you find yourself unable to do a loan modification then the next best thing may be doing a short sale. Searching through this website you will find a tremendous amount of information about what a short sale is and the process. Of course, you are always welcome to call me at any time with your questions. Jerry LaRose, 407-580-7011 jerry@JerryLaRose.com
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Jerry LaRose is an Orlando Area Residential Real Estate Expert, who can assist you with the purchase and/or sale of Real Estate in Orlando, Windermere, Winter Garden Florida or any place in the country. Jerry has created a team of professionals throughout Orlando and the country to ensure that you enjoy a smooth transition to your new area. Please visit www.JerrySellsOrlando.com for your real estate needs. Please give me a call if you have questions about the Orlando and Central Florida real estate market.
P.S. If you are listing your home as a short sale in Orange County Florida and Orlando, Windermere, Winter Garden, or Ocoee Florida make sure you hire an agent who knows how to do short sales and has the experience to get the job done. We are doing successful short sale packages. Call us at 407-580-7011 to find out more about Orange County Short Sales and Orlando Area Short Sales.
