Obama Targets Piggyback Home Loan Modifications

Mortgage market analysts note that about 1/12 of the total home loan marketplace consists of "piggyback loans." Mortgage lenders hold over a trillion dollars in these "second liens," which can include second mortgages or home improvement loans. However, government research uncovered an alarming fact: over half of the mortgage holders facing delinquency or foreclosure have multiple liens on their properties.

Therefore, government officials announced some updates to the Making Home Affordable program rolled out earlier in 2009. New program rules specifically target homeowners with multiple mortgages, making it more attractive for lenders to qualify their customers for federal assistance. Some of the new plan's key points include:

• Mortgage lenders participating in the government's home loan modification program must also include second mortgages when they restructure a borrower's debt.
• Mortgage lenders that agree to place accounts into the Hope for Homeowners program can receive financial benefits in exchange for writing down the value of their portfolios.
• Borrowers can receive bonus reward payments of $250 per year, for up to five years, in exchange for staying current on their modified mortgages.

Critics of the program complain that Treasury officials are essentially using taxpayer dollars to bail out Americans who bought appliances and swimming pools with proceeds from their second mortgages. On the other hand, government leaders hope that injecting more cash into the economy through the Making Home Affordable program can prevent foreclosures while easing the financial burden in communities hardest hit by the mortgage crisis.

Although some of the country's largest mortgage servicers have already agreed to participate in the Hope for Homeowners program, market analysts noted that the dire conditions of accounts with multiple liens prevented many prospective modification deals from reaching the closing table. With new incentives and with heightened attention to piggyback loans, officials hope to open the door to more flexible mortgage lending through the rest of the year.