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Second Mortgage Elimination

16th February 2011

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 1st 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.

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A few of the major home lenders in the Making Home Affordable Program have begun to work with 2nd 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 2nd mortgages 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

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