Homeowners with a second lien on their mortgage have often been in need of assistance through a second lien modification program in order to make their overall home loan payment obligations more affordable in an effort to help them avoid foreclosure. However, there have been conflicts between servicers and some large banks as to whether these second lien modifications can be offered, which has led to the FDIC to question whether more disclosure needs to be present concerning banks who own these second liens and offer modifications to assist homeowners.
Programs like the Second Lien Modification Program have been helpful to some homeowners as there are those individuals who have been able to acquire a primary mortgage modification but have not seen benefits due to the presence of a second mortgage. This program which modifies second liens similarly to a primary home loan modification has allowed for some homeowners to acquire a more affordable mortgage payment on their second lien obligation, thus helping them avoid foreclosure.
However, there seems to be concerns from the FDIC over whether the big banks that own these second liens and also own servicers of primary mortgages may have conflicting ideas of how to assist homeowners in situations where a second lien modification is being asked for or may be beneficial. A report by MarketWatch.com has reported on this issue within the FDIC and involving various mortgage servicers stating that there are problems which arise when “the servicer won’t modify the second-lien loan because of what it means to their parent bank’s balance sheet, and the mortgage investors of the primary loan, in return, won’t want to modify the primary mortgage if the second lien is not being modified.”
From an investment standpoint, regulators are wanting more disclosure on what will become of a second lien if a primary lien is in trouble, when packaging mortgage securities for investors. Yet, many of the nation’s top mortgage servicers have been participating in the Second Lien Modification Program as a way to help homeowners avoid default on a primary home loan modification.
However, there are some servicers who, in certain cases, have been unwilling to modify or write down second liens due to the loss they may take, but they are offering homeowners the option of a primary modification in the hopes of providing more affordability. There are those who feel that loan modifications on both primary and second liens will be necessary to stabilize and revive the economy, particularly in the area of housing, but if conflicts continue at financial institutions who own second liens and service primary mortgages as well this could not only hinder home loan assistance for homeowners, but could also cause difficulties for investors and financial institutions as well.
While homeowners who receive a primary home loan modification from the Home Affordable Modification Program typically can benefit from the second lien modification program due to the fact that guidelines state participating second lien modification servicers must offer to modify a homeowner’s second mortgage when a primary lien is modified, there is still concerns over whether servicers are offering these modifications on second home loans and whether their policy on doing so should be disclosed to investors concerning primary mortgage servicers and second liens that are owned by these financial institutions.