New Help For Individuals With 2nd mortgages...

This week, the Obama Administration unveiled a fresh set of incentives for mortgage servicers to help strapped U.S. homeowners. The U.S. Treasury will tap into a $50 billion housing rescue fund (TARP) to pay off mortgage investors and reduce monthly payments for millions of borrowers.

Under this new program, the government will pay mortgage servicers $500 up front and $250 a year for three years for successfully modifying or erasing a second mortgage, such as a home equity loan. According to a senior administration official, "It will be a shared effort with lenders, investors, borrowers and the government to ease or extinguish second-lien mortgage payments." It is expected that a significant amount of big banks will sign up for the updated federal program to bring relief to troubled homeowners. Once those firms sign necessary contracts, they'll generally be obligated to modify second liens when they've initiated a modification on the first.

Second liens typically have a higher interest rate than primary mortgages but those second liens will have a lower rate under the modification plan. The interest rate will go at least as low as the interest rate on the first and it will fall much further to get there.

The administration also announced a set of incentives for servicers and lenders participating in the Hope for Homeowners Program, which aims to restore homeowners' lost equity by encouraging lenders to write down loan principal. The administration said it will take steps to incorporate Hope for Homeowners into its loan modification program. Servicers will be required to determine eligibility for a Hope for Homeowners refinancing. Where it proves viable, the servicer would need to offer this option to the borrower.

Under the program, servicers must agree to modify all second mortgages where the first mortgage has already been modified. To qualify for payment, servicers must extend the term of the second mortgage and reduce the interest rate to match the first mortgage. Then, the government will share the cost with the servicer of reducing the rate down to 1% for amortizing loans and 2% for interest-only loans.

Borrowers will receive payments of up to $250 per year for as many as five years if they stay current on the loan. The payments will be applied to pay down principal on the first mortgage.

Changes to the Hope for Homeowners program are designed to place it in line with the taxpayer-assisted loan modifications. Launched last fall to help troubled borrowers refinance into more affordable government-backed loans, it has failed to gain traction due to onerous borrower requirements and the nagging problem of second liens. The administration announced a $2500 up-front payment to servicers that refinance borrowers into the program. Meanwhile, lenders that originate the new loans will receive $1000 a year for three years, as long as the loans stay current.

Officials also say that they will continue to remove other bureaucratic encumbrances and expand incentives where needed to steer more homeowner away from default...a very "Empowering" move...