Loan Modifications for a Second Lien

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Second mortgages can be a major problem for homeowners seeking mortgage relief through a loan modification or refinance. Fortunately, help is available through the federal Making Home Affordable program (MHA). 

The MHA Second Lien Modification Program, known as 2MP, is designed for homeowners who need to have their second mortgages restructured to make them more affordable. It works in connection with MHA's Home Affordable Modification Program (HAMP), which provides loan modifications on primary mortgages.


Debt forgiveness possible


The 2MP program can help homeowners in a variety of ways. They could get their interest rate reduced, have their mortgage payments stretched out over a longer period of time, or even get part or all of their debt forgiven.


The program can be used for any type of second mortgage lien - a home equity loan, home equity line of credit (HELOC) or a "piggyback" loan used in lieu of a down payment when the home was purchased.


Second liens, or mortgages, can be a thorny problem for homeowners seeking to restructure their mortgages. Borrowers who obtain a mortgage loan modification - the terms on their primary mortgage are changed to make it more affordable - may still be facing financial difficulty because of the added burden of one or more second mortgages.


A mortgage refinance may also be thwarted when the second lien holder refuses to resubordinate the lien to the new mortgage - that is, agree to put it second in line behind the main mortgage for getting paid in the event of a default (as is required under the Home Affordable Refinance Program, HARP, for mortgages with little or no equity).


Must have a HAMP loan modification first


To obtain a 2MP loan modification on a second mortgage, you first have to have your primary mortgage modified through HAMP. This is crucial - 2MP is only for homeowners with HAMP loan modifications on their primary mortgage. So if you haven't done so already, applying for a HAMP loan modification needs to be your first step.


One thing to be aware of. Many lenders will offer private, or proprietary, loan modifications to borrowers in financial trouble instead of a HAMP loan modification. In fact, getting a proprietary loan modification will prevent you from qualifying for a 2MP on a second lien.


You can only use 2MP to modify one second lien. If you have multiple secondary liens, you can only modify your most senior second mortgage lien. Liens for unpaid taxes or other non-mortgage liens are not included.


Financial hardship must be shown


To obtain a HAMP loan modification, you need to be able to demonstrate that you have a genuine financial hardship. Often, this means that you will default on your mortgage without a loan modification or that you are facing a circumstance like medical expenses or reduced household income that makes it difficult for you to keep up with your mortgage payments.


This requirement may be a problem for borrowers who were thwarted from refinancing through HARP due to a second lien, since refinance candidates typically have fairly sound finances. However, if you are current on your payments and have good credit, but can show you will eventually fall behind on unless you can reduce your mortgage payments, you may be able to obtain a HAMP loan modification.


Apply through mortgage servicer


To apply for a HAMP loan modification, you first have to apply with your mortgage servicer, the company you send your mortgage payments to for your primary mortgage. Once you are approved for that and are making modified payments, you can begin to seek a 2MP modification on your second mortgage. For that, you apply through the lender you send your payments for your second lien to.


The good news is, lenders seem willing to approve modifications of second liens under 2MP. According to recent Treasury Department figures, about 63 percent of all borrowers with HAMP modifications who were eligible to be considered for a 2MP modification had been approved to have their second liens modified.


For more information, contact your mortgage servicer or visit the Making Home Affordable web site at http://www.makinghomeaffordable.gov.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Personal Finance , Banking and Loans

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