***UPDATE: Click HERE to view a 30-minute self-guided tutorial that provides an overview of the Second Lien Modification Program (2MP) for servicers of non-Government Sponsored Entities (GSE) loans.***
Note: If you are having a problem accessing the tutorial, email me at firstname.lastname@example.org
Many homeowners may be struggling to make their monthly mortgage payments because they have a second lien. Even when a first mortgage payment is affordable, the addition of a second lien can sometimes increase monthly payments beyond affordable levels. Second liens often complicate or prevent modification or refinancing of a first mortgage.
The 2nd Lien Modification Program (2MP) offers homeowners a way to lower payments on their second mortgage. 2MP offers homeowners, their mortgage servicers, and investors an incentive for modifying a second lien. Servicers and investors may also receive an incentive for extinguishing a second lien, forgiving all of the debt a homeowner owes.
Homeowners must provide consent to share their first lien mortgage modification information with their second lien mortgage servicer, if they are different. Since 2MP is meant to be complementary to the Home Affordable Modification Program (HAMP), a homeowner must have their first lien modified through HAMP before the second lien can be modified under 2MP.
Under 2MP, with their investor’s guidance, a mortgage servicer may:
- Reduce the interest rate to 1% for second liens that pay both principal and interest (amortizing)
- Reduce the interest rate to 1% amortizing or 2% interest-only for interest-only second liens
- Extend the term of the second lien to 40 years
- If the principal was deferred (through forbearance) or forgiven on the first lien, a servicer must forbear the same proportion on the second lien; although a servicer may, in its discretion, forgive any portion or all of the second lien and receive incentives for doing so
A second lien is eligible for 2MP if:
- the corresponding first lien has been modified under the Obama Administration’s HAMP and the second lien servicer is participating
- it was originated on or before January 1, 2009
- it does not have an unpaid principal balance (at consideration for the modification) of less than $5,000 or a pre-modification scheduled monthly payment of less than $100
- it has not yet been modified under 2MP
- it is not subordinate to a second lien or is not a home equity loan in first lien position
- it is not a second lien on which no interest is charged and no payments are due until the first lien is paid in full
- the second lien servicer is in possession of a fully executed 2MP modification agreement or trial period plan by December 31, 2012; or the second lien is not insured, guaranteed, or held by a Federal government agency (e.g. FHA, HUD, VA, and Rural Development)
Family A: Amortizing Second Mortgage
In 2006: Family A took out a 30-year closed-end second mortgage with a balance of $45,000 and an interest rate of 8.6%.
Today: Family A has an unpaid balance of almost $44,000 on their second mortgage.
Under the 2MP: The interest rate on Family A’s second mortgage will be reduced to 1% for 5 years. This will reduce their annual payments by over $2,300.
After those five years, Family A’s mortgage payment will rise again but to a more moderate level.
|Existing Mortgage||Loan Modification|
|Savings||$195 per month, $2,336 per year for five years|
Family B: Interest-Only Second Mortgage
In 2006: Family B took out an interest-only second mortgage with a balance of $60,000, an interest rate of 4.4%, and a term of 15 years.
Today: Family B has $60,000 remaining on their interest-only second mortgage because none of the principal was paid down.
Under the 2MP: The interest rate on Family B’s interest-only second mortgage will be reduced to 2% for 5 years. This will reduce their annual interest payments by $1,440.
After those five years, Family B’s mortgage payment will adjust back up and the mortgage will amortize over a term equal to the longer of (i) the remaining term of the family’s modified first mortgage (e.g. 27 years if the first mortgage had a 30 year term at origination and was three years old at the time of modification) or (ii) the originally scheduled amortization term of the second mortgage.
|Existing Mortgage||Loan Modification|
|Remaining Years||12||27 (term reset to the remaining term of the modified first loan)|
|Monthly Interest Payments||$220||$100|
|Savings||$120 per month, $1,440 per year for five years|
List of Participating Servicers
- Bank of America (including Countrywide)
- Citi Mortgage, Inc.
- Chase (including EMC and WaMu)
- Wells Fargo (including Wachovia)
- BayView Loan Servicing, LLC
- Servis One dba BSI Financial Services
- iServe Servicing, Inc.
More servicers will be added in the near future as they join the program.
For more information, contact your mortgage servicer.