New mortgage relief plan to address second mortgages

04.28.09
By Sarah Beldo

The Obama administration is expected to unveil a new program today aimed at helping homeowners with a second mortgage avoid foreclosure.

Second mortgages - with may include home equity loans - were used during the housing boom as a way for consumers to avoid making a down payment. Often, they were even extended to borrowers with poor credit scores. 

The existence of these mortgages adds a layer of complication to the government's home loan relief effort, because the primary and secondary loans are typically held by different companies.

The government is looking for a way to guarantee that borrowers who are in danger of defaulting on home loan payments are able to modify both of their mortgages.

Speaking to a number of news outlets on condition of anonymity, administration officials said the new program will pay mortgage servicers an initial amount of $500, as well as $250 per year over three years, on condition of a successful home loan modification in which the borrower does not default.

The changes are expected to be announced today by the Treasury, along with improvements to the Hope for Homeowners mortgage-aid program, which is primarily aimed at helping borrowers who owe more on their home loans than their properties are worth.

Hope for Homeowners was intended to help as many as 400,000 households move on to lower-rate mortgages - however, to date only a small number have qualified, according to the Associated Press.

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The changes are expected to be announced today by the Treasury.