With the government continuing their politically correct stance of forcing banks to offer loan modifications to struggling homeowners, there has been very little talk about mortgage refinancing and lien stripping.  These are viable solutions to homeowners who want to eliminate their second mortgage.  While lenders are handing out 1^st mortgage modifications like cup-cakes, many lenders are resistant to extend second mortgage modification programs because the re-default rate is so high.  The first recommendation for homeowners should be consolidating the first and second loans together.  FHA mortgage rates continue to be appealing below 5% and the fixed rate FHA programs are flexible with credit and equity.  For those that do not qualify for refinancing, second mortgage lien stripping has become an attractive alternative.

In a recent report, the Congressional Oversight Committee admitted the government’s HAMP loan modification program has failed to help enough homeowners to correct the housing crisis. The vast majority of loan modification requests fail, in part, experts believe, because banks have balked at offering a reduction in mortgage principal, the most effective way to halt costly foreclosures. Fannie Mae and Freddie Mac immediately proclaimed, however, that they remain opposed to making this option available to struggling homeowners. Protecting the interests of the banking industry over the consumer, the Federal Reserve also blocked new foreclosure regulations that would have reined in foreclosure abuses.

Although the economic collapse of 2008 has caused the tide to rush in on everyone, there has been no bailout for the “little guy.” Left to fend for themselves, increasing numbers of homeowners are turning to a little-known provision in the federal bankruptcy law, which permits the discharge of a second or even third mortgage in its entirety in a Chapter 13 bankruptcy. The American Bankruptcy Institute recently reported that Chapter 13 bankruptcies have risen by 9 percent in 2010 compared to last year.

Flying under the media radar, the right to discharge a second mortgage in a Chapter 13 bankruptcy provides a glimmer of hope to homeowners stuck with a foreclosure because they own a home they can’t afford and can’t sell. With one in 10 Americans out of work, while others have suffered a pay cut as a condition of keeping their jobs, the amount of disposable income available to pay a mortgage is not what it used to be. Getting rid of a 2nd mortgage payment can sometimes make the difference between keeping a home and losing it to a foreclosure. How then does a homeowner qualify? Quite simply, when a home is worth less than the balance of a first mortgage, federal bankruptcy law — at least in most states — permits a homeowner to treat a second mortgage like an unsecured credit card and discharge it in a Chapter 13 bankruptcy. Read the original Huffington Post article, written by Richard Gaudreau.

Homeowners continue to report struggles with the loan modification process and with so much mortgage relief talk around the nation many consumers want to know what is going on.  According to former Ditech.com executive, Jeff Morris, “Many homeowners simply do not have enough income to justify the lenders extending a loan modification.”  Morris continued, “If a borrower can’t document their income at all, it is very unlikely that the banks and lending companies will approve them for a loan modification.  Morris made it clear that borrowers do not need to be under the 50% Debt to Income Ratio (D.T.I.) like they do to qualify for a mortgage refinance.  He said that D.T.I. from 70 to 95% is pretty common for loan modification agreements this year. Alarming Numbers on Foreclosure Crisis
More than 1 million homes expected to be taken over by mortgage lenders in 2010, yet thousands of homeowners report relief from the loan modification that they were approved for. Second mortgage lien stripping has also been a common practice for bankruptcy lawyers. Getting approved for a second mortgage modification has become trickier than many borrowers had hoped.  Another problem many borrowers find is that the investors are usually different for their first and second mortgage.  This makes the second mortgage modification process.

A few of the major home lenders in the Making Home Affordable Program have begun to work with 2^nd lien holders in an effort to modify and restructure their delinquent mortgage.  Clearly the goal is to offer a second mortgage modification program that makes their loan payments more affordable. Successfully achieving a principal reduction or negotiating a second mortgage buyout is possible.   Many borrowers have been unsuccessful working with their second lien holder.  Recently several large second mortgage service companies have announced new mortgage relief initiatives that have become available to help homeowners who are struggling with a second lien.  Many homeowners have been rejected in their attempt for mortgage refinancing solutions are frequently denied because their second mortgage raises their combined loan to value level beyond the threshold allowed for refinancing.

We still recommend that homeowners to talk to their lender and let them know about the a Second Mortgage Modification Program that is available to help distressed homeowners negotiate better second mortgage terms or a buyout. Read the original article > Negotiating Second Mortgage Relief

Thousands of borrowers are losing trial loan modification agreements that were installed recently under the HAMP prrogram. The total of distressed homeowners who drop out of President Obama’s loan modification plan soared in April.  According to federal loan modification statistics released last week, over 122,000 homeowners had their trial mortgage loan modification agreement canceled in April, bringing the total to 277,640 since the HAMP program began about a year ago.

Meanwhile, only 68,000 homeowners were converted from the trial modification phase to a permanent loan modification last month.  Under the program, known as HAMP, eligible troubled borrowers are put into trial home loan modifications to determine whether they can keep up with the reduced mortgage payments and to give loan servicers time to verify income and hardship.  A total of 295,348 people have received permanent long-term help under the loan modification plan, but another 3,744 who were converted to permanent status were later cut from the program anyway.  Mortgage refinancing has not been an option for millions of homeowners who have inadequate credit scores or mortgages that are buried under-water with home values less than the mortgage balance.

The latest modification report does not include home equity loan modification details.  Many industry insiders believe the second mortgage foreclosures and defaults could be stemmed if home equity servicers came up with a good modification plan for home equity credit and second mortgage loans.  Many homeowners have used the loan modification to stop the foreclosure proceedings.

In most cases, loan modification agreements are usually canceled if the borrower fails to make the adjusted payments, or if during the trial period, does not meet the program’s criteria or hand in the required income verification paperwork.  Obama admin officials said they were not surprised to see the number of canceled trial mortgage modifications rise because borrowers had been allowed to enroll in the trial program by simply stating their income. Many homeowners are being dropped from HAMP if they cannot prove the income figures they originally provided.  “As those decisions get made, it’s certainly expected that there would be some that fall out of HAMP,” said Phyllis Caldwell, chief of Treasury’s Homeownership Preservation Office.  So far, some 24.6% of trial loan modification options have become permanent, up from 19.8% a month ago.  Some 637,353 troubled borrowers remain in trial mortgage loan modifications, officials said. The pace of people entering the program has slowed as servicers begin implementing new requirements to collect documents at the outset. Read the original article at CNNMoney.com.

President Obama made more mortgage news as he announced further expansion of the federal loan modification program, Home Affordable Modification Program also known as HAMP.  Many Washington insiders are questioning the rumored bailouts to mortgage lenders and banks contained in the fine print of the HAMP program.

According to the Wall Street Journal, several of the largest mortgage lenders, including some that have already received huge bailouts, carry hundreds of billions worth of home equity loans on their books. As home prices have nationally declined by almost 30%, these second mortgage liens are worthless in the case of a foreclosure. Second mortgage loans are usually wiped out completely during a foreclosure if the price has decreased more than 20%.

Yet the Obama solution is now to pay off 6 cents on the dollar for those junior liens, also known as second mortgages. While 6 cents doesn’t sound like a lot, it is a whole lot more than zero, which is what the banks would receive otherwise. Given that the largest mortgage lenders are carrying over $500 billion in second mortgages that may need to be written down, we are talking about tens of billions of taxpayer dollars again being funneled to the very banks behind the subprime mortgage crisis.  If that bailout isn’t enough, the new equity loan plan increases payments to home loan lenders to not take over homes, all at the expense of the taxpayer.  Many critics believe that Obama continues these mortgage bailouts rather than correcting the financing problems in the housing market.