The Obama administration is announcing incentives today for mortgages servicers to modify home equity loans and other second mortgages.
Servicers must agree to modify second mortgages when the first mortgage has been modified. They must extend the term of the second mortgage and match the rate of the first mortgage. Then the government will share the cost with the servicer of cutting the rate to 1 percent for amortizing loans and 2 percent for interest-only loans.
Under the program, the government will pay mortgage servicers $500 upfront and $250 a year for three years for the modifications. Borrowers will receive payments of up to $250 a year for five years if they stay current on the modified loan.
There will also be a schedule of incentives for holders of second liens to drop their claims altogether.
The Department of Housing and Urban Development and Treasury will make the announcement jointly.
Bank of America, Wells Fargo, and JPMorgan Chase have already agreed to participate in the program.
A separate announcement will include changes to the Hope for Homeowners program, which helps homeowners refinance into more affordable government-backed loans. To get this program moving, the administration is announcing a $2,500 upfront payment to servicers. Lenders will receive $1,000 a year for three years if the loan stays current.
Source: The Wall Street Journal, Jessica Holzer (04/28/2009)