Help for Second Home Loans from the Government
In April 2010, the Obama Administration is due to launch a series of alternatives to foreclosures in a bid to stanch the real estate bleeding. In fact, one of the stumbling blocks to any tangible recovery has been the existence of second loans. Since first-lien holders agree to reduce the loans, the second home loan holders have been able to torpedo any prospects of short sale by their persistence in their claims. In addition, banks paradoxically benefit from holding second mortgages. Hence, it is imperative to find a permanent and pragmatic solution to this conundrum.
HELP FOR SECOND LOANS
BORROWERS RECEIVE HELP THROUGH HOME AFFORDABLE PROGRAM: Borrowers who obtain help for their first-lienOR mortgage through the Obama Administration’s Home Affordable Modification Program, AUTOMATICALLY, would receive help on their second mortgage, as well.
LARGE BANK PARTICIPATION EXPECTED: Thus far, the government has not been very successful in securing large bank’s voluntary participation in programs to assist underwater home borrowers. However, banks reluctantly might be willing to budge. In fact, Bank of America has already pledged its support of this latest governmental sponsored bid. Other large banks such as Wells Fargo or JP Morgan have not commented.
INCENTIVES FOR LENDERS: Under this program, lenders of second loans would receive up to 3% of the unpaid balance up to $3,000 for giving up ALL CLAIMS in event of short sale.
MORE GOVERNMENT HELP NEEDED: In fact, to induce banks to participate they need to be able to write off their second loans over an extended period rather than writing it off all at once to thwart an immediate hit to their capital.
BANKS EXPRESS RELUCTANCE TO PARTICIPATE IN A TANGIBLE WAY: Although banks are benefiting from holding junior mortgages,the reality is that banks want to retain an option to get their money if the borrower has significant other assets or in the future can pay them. However, the legitimacy of this argument is open to debate.