April 14, 2010
Second Mortgages
Homeowners beware of your second mortgages haunting you after you lose your home. A similar case has occurred to a woman in San Diego when she lost her condo and Wells Fargo & Co. has decided to sue her for the $72,000 she owed on her second mortgage.
New government regulations include having lenders write down or forgive second mortgages, but considering the San Diego case, lenders want to collect anything they possibly can before letting go. House Financial Services Committee will question executive members of Wells Fargo, Bank of America, Citigroup and J.P. Morgan Chase & Co. regarding their policies on second liens.
AT the end of 2009, Federal Reserve data shows that second lien mortgages account for nearly 10% of the entire mortgage debt. Today, homeowners who find relief from their first mortgages through a modification or loan restructure face an even tougher time with the second liens that lenders make nearly impossible to restructure.
In the lenders defense they have state that even though homeowners are defaulting on their first mortgages they are making payments on their second loan. The banks do not want to write down on second loans that are still active. Bank of America spokeswoman has stated “...we do reserve the right to recover the unpaid balance on the second lien if permissible by state lay. However, our practice has been to only to pursue recovery in situations where we believe the customer has sufficient nonretirement assets to satisfy their debt obligation."
Lenders should try to negotiate a reasonable workout plan for borrowers who are willing to continue making payments and would like to stay in their homes. Wages and assets could possibly be garnished if borrowers decide not to cooperate, stated an Englewood, Colorado attorney. Each state has their own governing laws regarding second lien mortgage modifications. Make sure to do further research about the rules and regulations in your area.
What the government is currently offering:
- Participating lenders must reduce payments on second loans if they have already modified the first loan.
- Debt should be forgiven or deed should be given to lender, if the borrower sells their home for less than debt owed. Second lien holder might be paid 6% of loan balance or up to $6,000 and will no longer be able to collect from borrower.
