2nd loan modifications and the OBAMA PLAN

Nathan Fransen Esq. — Wed, 29 Apr 2009 13:42:55 +0000

Well today the news broke about President Obama ‘s new new stimulus plan, or as they put it his “expansion” to the foreclosure prevention program. Previously the President and all the supporting cast lined up to explain how with $75 billion, the housing crisis could be solved. Lenders would modify loans in mass and borrowers would finally get the relief they need. Fast-forward a couple months and now we are seeing lenders continuing their reluctance with a few bright spot exceptions.

The “expansion” deals with second mortgages. The lenders prompted by the first go round had a valid point. “Why should we modify our loan, when the 2nd gets to sit back and collect their full payment, often at a higher interest rate.” This argument won favor with Washington, and now the President is doing the following:

·         For 2nds that are principal and interest loans, the interest rate will be 1%
·         For 2nds that are interest only, the interest rate will be 2%
·         2nd lenders that extinguish their lien entirely will get 3 cents on the dollar if the borrower is more than 6 months delinquent and 4-12 cents for borrowers that are less delinquent
·         The Government will pay the servicers $500 for each loan modification and $250/yr for three years if the borrower stays current
·         The Government will pay the homeowner $250/yr for five years to pay down their first mortgage

The servicers that participate in this program must modify the loan if and when the first modifies. They expect it will take about a month to implement the program. Overall this definitely has the makings of a plan that will help homeowners, but the question is how many homeowners?

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2nd loan modifications and the OBAMA PLAN