When we talk about loan modifications it may sound like we’re departing from the local, Chico perspective…nothing could be farther from correct. We recently mailed flyers to ONE HUNDRED Butte County homeowners who had received Notices of Default from their lenders within the last month. Local issue? We think so!
The conversation about loan mods has focused on first mortgages, but according to Credit Suisse Group in a Wall Street Journal article “About half of seriously delinquent borrowers have a second mortgage”. In fact, it seems to us that the second mortgages are one of the biggest parts of the problem. Consider this: a home sold 4 years ago in Chico for $500,000, the buyer put almost nothing down (common practice at that time), the first mortgage was for 80% of the value (at that time) or $400,000, a second mortgage covered most of the rest or approximately $100,000. Since then, local home values have dropped 20%-50%. The home is now worth maybe $350,000. The first mortgage holder only stands to lose $50,000, while the second stands to lose all $100,000.
So at 6% the payment on the first is app. $2400 and on the second app. $600, in other words: one-fifth of the home-owners monthly nut is the payment on the second. Modifying the first by a couple hundred dollars is great, but if the $600 doesn’t change, a loan modification may not solve the problem.
Because of that the Obama administration went back to the drawing board last year to revise their foreclosure prevention program to address adjusting second mortgages in addition to the plans original goal of modifying firsts.
According to the article “Under the revised plan, mortgage-servicing companies that participate in the loan-modification program for second liens must automatically modify the second mortgage when the first mortgage is reworked. The government will share in the cost of reducing the interest rate on second mortgages for five years. As an alternative, it will pay holders of second mortgages to extinguish that debt.”
So, if you have been agonizing over a loan modification because you think it still won’t get your monthly payments where they need to be, there’s hope that your second may be reduced or removed as well.
The conversation about loan mods has focused on first mortgages, but according to Credit Suisse Group in a Wall Street Journal article “About half of seriously delinquent borrowers have a second mortgage”. In fact, it seems to us that the second mortgages are one of the biggest parts of the problem. Consider this: a home sold 4 years ago in Chico for $500,000, the buyer put almost nothing down (common practice at that time), the first mortgage was for 80% of the value (at that time) or $400,000, a second mortgage covered most of the rest or approximately $100,000. Since then, local home values have dropped 20%-50%. The home is now worth maybe $350,000. The first mortgage holder only stands to lose $50,000, while the second stands to lose all $100,000.
So at 6% the payment on the first is app. $2400 and on the second app. $600, in other words: one-fifth of the home-owners monthly nut is the payment on the second. Modifying the first by a couple hundred dollars is great, but if the $600 doesn’t change, a loan modification may not solve the problem.
Because of that the Obama administration went back to the drawing board last year to revise their foreclosure prevention program to address adjusting second mortgages in addition to the plans original goal of modifying firsts.
According to the article “Under the revised plan, mortgage-servicing companies that participate in the loan-modification program for second liens must automatically modify the second mortgage when the first mortgage is reworked. The government will share in the cost of reducing the interest rate on second mortgages for five years. As an alternative, it will pay holders of second mortgages to extinguish that debt.”
So, if you have been agonizing over a loan modification because you think it still won’t get your monthly payments where they need to be, there’s hope that your second may be reduced or removed as well.
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