Obama Government Plans to Address the Second Mortgages

Obama administration had issued new guidelines for the foreclosure prevention program, which addresses the issue on how to deal with borrowers with second mortgages and equity loans. Reports from Credit Suisse Group show that more than 50% of those borrowers have opted for a second mortgage. Obama administration’s $75 billion program was severely criticized by mortgage investors. These investors were mainly from securities and they did not like it because second mortgages were neglected in the program. Insurance firms, hedge funds and pension funds are included in the list of these investors.

They have an argument that the second mortgages which will be paid after the first mortgage were not addressed at all. This was contradictory to the argument which banks gave. The new plan has not left any way open. If a mortgage servicing company participates in the loan modification process, the second mortgage will be worked upon with the first mortgage by default. On the positive side, the government will share the interest that is reduced over the mortgages for a period of five years. The other option is that the debt holders will be offered to eliminate the debts. The mortgage servicing firms which show good performance in modification of second mortgages will be given $500 as upfront payment and $250 per year as subsequent payments. Current borrowers on modified loans will receive $250 per year for up to five years so that they are helped with the first mortgage payments. Loan modifications are certainly the need of the day.

The program “Hope for Homeowners” will be encouraged by the government. This program gives the borrowers the facility of refinancing to a loan backed by the government. A government estimate shows that more than 1.5 million homeowners will receive help from the government by addressing second mortgages. This kind gesture by the government will reduce the monthly payments for the homeowners in distress and will help they stay in their own homes. Obama’s loan modification plan aims at helping people everywhere.

12 mortgage servicers who are servicing more than 75% of the mortgages have decided to show participation in the government’s first mortgage loan modification program.