Homeowners with a second mortgage may qualify for some additional relief with the Second Lien Program under the Making Home Affordable Program.
The Treasury Department estimates that up to 50 percent of at-risk mortgages currently have second mortgages. The Second Lien program may potentially reduce payments further for up to 1 to 1.5 million homeowners, or 50 percent of the Home Affordable Modification Program. The program announced yesterday may help maximize the effectiveness of the first lien modification program.
The Second Lien Program includes:
- Shared Efforts with Lenders to Reduce Second Mortgage Payments
- Pay-for-Success Incentives for Servicers, Investors and Borrowers
- Payment Schedule for Extinguishing Second Mortgages
- Automatic Modification of a Second Lien When a First Lien is Modified
But what can homeowners really expect to see in regards to their monthly mortgage payments?
The Treasury Department has provided examples for real-life situations and what the Second Lien Program can do.
Famly A: Amortizing Second Mortgage
They took out a 30-year second mortgage of $45,000 in 2006 with a 6.8 percent interest rate. Today they still have an unpaid balance of almost $44,000 on the second mortgage. The Second Lien Program can reduce their interest rate to 1 percent for 5 years, reducing annual payments by over $2,300. The payments will rise after five years, but to a more moderate level, and after the family has had the five years to take advantage of the interest savings.
Family B: Interest-Only Second Mortgage
In 2006 they 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 they still have $60,000 remaining on their loan because they never paid down any of the balance. The Second Lien Program will reduce their interest to 2 percent for 5 years, saving them $1,440 every year. After 5 years the interest rate will go back up.
For more information about the Making Home Affordable Plan, go to MakingHomeAffordable.gov.
And for more details about the Second Lien Program announced yesterday, check out our blog entry Second Mortgage Assistance Announce By Obama Administration
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