HAMP 2nd Lien Modification Program (2MP)

June 16, 2010

 

***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 lauren@lossmitigationmasters.com

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)

Examples

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
Balance $43,942 $43,942
Remaining Years 27 27
Interest Rate 8.6% 1.0%
Monthly Payment $349.48 $154.81
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
Balance $60,000 $60,000
Remaining Years 12 27 (term reset to the remaining term of the modified first loan)
Interest Rate 4.4% 2.0%
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.

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Citi’s Deed-In-Lieu of Foreclosure Offers Borrowers 6 Months Free Rent

February 19, 2010

On February 11, 2010, Citigroup announced plans to introduce a pilot program that would let homeowners on the verge of foreclosure stay in their homes for six months, provided that they turn over the deed to the property; otherwise, known as a deed-in-lieu (DIL) of foreclosure.

Citi will begin the program, called Foreclosure Alternatives, this week in some states that have been particularly hard-hit by foreclosures: Florida, Illinois, Michigan, New Jersey, Ohio and Texas. About 1,000 homeowners are expected to participate.

For homeowners in financial trouble, there are a few benefits to the program:

  • You get to stay in your home for an extra six months. While you still have to leave, getting the extra six months can help your kids finish their school year and give you time to pack and plan for your next move.
  • Mortgage payment not required. Citigroup won’t require you to make a mortgage payment while you live in the home. That should give you six months to sock away savings – cash you’ll need to pay moving expenses and perhaps to put down a security deposit on a new place to live.
  • A deed-in-lieu of foreclosure will hurt your credit history and credit score less than a straight out foreclosure. While your credit score will drop, it might not drop as much.
  • Citi will pay at least $1,000 in relocation costs and will consider helping with other expenses. It also will offer relocation counseling.

Borrowers in Citi’s program must still pay utility bills. Borrowers will be required to “maintain the property in its current condition,” the bank said.

Something formally needs to be done in addition to the modifications,” said Sanjiv Das, chief executive of CitiMortgage. “We are in a different stage of the housing cycle. Restructuring  mortgage payments was part one of the cycle, making sure that foreclosure glut doesn’t hit the industry is part two of the cycle. Citi is trying to stay ahead of it.”

Sanjiv also said the program is “less painful for our borrowers as well as for us.”


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