Washington Tackles Loan Mod Roadblockby Tim Manni
The White House announced a new initiative today in order to help alleviate a stubborn roadblock that has hampered the success of several loan modification programs. By providing financial incentives to second lien holders, the Obama Administration is hoping to allow homeowners with “piggyback” mortgages to modify more easily:
…those loans, which are attached to about half of all troubled mortgages, have been an obstacle to efforts to alleviate the housing crisis. That’s because borrowers who are trying to get their primary mortgage modified at a lower monthly payment need the permission of the company holding the second mortgage.
Utilizing $50 billion in “financial rescue money,” the White House will offer lenders $500 for each modified loan, and then an additional $250 a year for up to three years as long as the borrower doesn’t default. Borrowers will receive up to$1,000 over a five-year period “applied to the principal balance of their primary mortgage, and the government would pick up part of investors’ costs as well.”
This initiative offers the same structure as the controversial incentives provided under the president’s Homeowner Stability Initiative as part of the Homeowner Affordability and Stability Plan (HASP), just with smaller dollar amounts.
“The structure of piggyback mortgages make them the most difficult to modify,” said HSH Vice President Keith Gumbinger.
Additionally, the administration is said to be offering lenders up to $2,500 to participate in the unsuccessful Hope for Homeowners program.
More questions on piggyback mortgages? Click here to read HSH’s piggyback mortgage Q&A.