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The Two-Lien Tango

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Posted On: 10/03/2012

QUESTION:

I have a first and second mortgage on my home. Last year, my lender agreed to a loan modification on the first. The problem is that the lender will not help with a re-fi or loan modification on the second lien. Any suggestions?

ANSWER:

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Let’s imagine you bought a home six years ago for $300,000. You got 80 percent ($240,000) from the first loan, 15 percent ($45,000) from the second and paid $15,000 in cash plus closing costs.

Today the property is worth $200,000. That means there is no equity. If the property is foreclosed, any money from the sale will go to pay off the first lender. If there is anything left after the first lienholder is paid – and in this example, there isn’t – then the second lienholder may get some money.

Your question raises several points.

First, the lender will not refinance or modify the second lien because the property has little or no equity to secure the mortgage.

Second, it may appear that both loans are owned by one lender, but that may not be the case. It’s entirely possible that you’re speaking with the loan “servicer,” a company that collects monthly payments. The two loans may be owned by different investors.

Even though your property has little or no equity, it may be possible to change the terms of the second mortgage under the government’s Second Lien Modification Program (2MP). However, for this to happen the first lien must be modified through the federal Home Affordable Modification Program (HAMP), and the second lien owner must be among those who participate in 2MP.

Just getting the first mortgage modified through HAMP could greatly ease financial issues – the typical monthly savings with a successful HAMP refinance is $536. In other words, even if the second lien cannot be modified, a HAMP modification could still help.

You can get more modification information at MakingHomeAffordable.gov or by speaking with a free HUD-approved housing counselor at 888-995-4673.

Peter G. Miller is the author of The Common-Sense Mortgage and a veteran real estate columnist. Have a question? Please write to peter@ctwfeatures.com.

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