Stop Foreclosure – Second Mortgages and the Making Home Affordable Second Lien Program
June 24th, 2010
On April 28, 2009 the Obama Administration announced an expansion to the Making Home Affordable Modification Program. This is the Making Home Affordable Second Lien Program.
The Making Home Affordable Modification Program is is designed to help people facing foreclosure to avoid it by lowering the monthly payment on their mortgage to a level they can afford to make. This part of the program is for first mortgages only.
The new Making Home Affordable Second Lien program deals with second mortgages. The administration realized that 50% of the people facing foreclosure had both a first and second mortgage on their home. They needed to address both mortgages. If they didn’t, the program would not be as successful as it could be.
This addition to the original program stipulates that when a person facing foreclosure has a first and second mortgage, the second mortgage will automatically be modified when the first mortgage is modified.
In a modification for a first mortgage, the monthly mortgage payment is reduced to 31% of the person’s gross income. To accomplish this, the interest rate on their mortgage may be reduced to as low as 2%. The monthly payment is fixed at this level for 5 years.
There are two types of second mortgages.
The first is a fixed second mortgage where the monthly payment is fixed. It is a principal and interest payment and the mortgage is typically paid off in 30 years.
The second is an interest only mortgage. Every month only the interest due is paid on the mortgage. The only way the principal is paid off is if the person pays extra toward the principal.
The Making Home Affordable Second Lien program provides that in those instances where there is a second mortgage and the first mortgage is modified, the interest rate on the second mortgage will be reduced to for 5 years. On a fixed rate second mortgage, the rate will be reduced to 1%. On an interest only mortgage the rate will be reduced to 2%.
Let’s look at examples to see what this would look like for both a fixed second mortgage and an interest only mortgage.
Say that in 2005 a home was purchased for $350,000. There was a second mortgage for $52,500 or 15% of the purchase.
If this was a fixed second mortgage for the $52,500 and the interest rate was 7.75%, the monthly principal and interest payment would have been $376.12. At the time of modification the balance on the mortgage was $50,422.68 and 26 years were left to be paid on the mortgage. The interest rate would be reduced to 1% and the new payment would be $183.60 a month. The monthly payment on this mortgage for the person facing foreclosure would be reduced by $183.60. Over the next 5 years the total reduction would be $11,551.17.
If this was an interest only second mortgage for the $52,500 and the interest rate was 6.25%, the monthly interest only payment would have been $273.44. Say the person made no additional principal payments and the balance of the mortgage at the time of modification was still $52,500. The new interest rate would be 2% and the new interest only payment would be $87.50 a month. The original payment would be reduced by $185.94 a month. Over 5 years the total reduction would be $11,156.25.
At the end of 5 years, the interest rate on both the fixed second mortgage and the interest only mortgage start to adjust up to the current interest rate on the modified first mortgage. The payments on both will be recalculated so that both mortgages will be paid off at the same time as they were supposed to be as specified in the original contract at the time of purchase.
The monthly payment on the interest only mortgage will continue to be an interest only payment until the date it is scheduled to convert to a regular principal and interest payment in the original contract.
The revised program should go a long way to help people facing foreclosure who have first and second mortgages save their homes.
As a real estate investor since the 1980’s Mark Elkins has seen the devastating impact foreclosure has had on common ordinary people. This has led him to study and gain much knowledge and insight into how to help people in foreclosure to take the offensive, reverse the process, save their home and minimize their losses. Please visit his website, http://www.stopforeclosureanswer.com Also check out the blog at http://www.stopforeclosureanswer.com/stopforeclosure
Article Directory: EzineArticles http://ezinearticles.com
For more videos on short sales check out Kevin and Fred on the Short Sale Power Hour. Video for Short Sale Specialists.
Posted in Foreclosure
Fred Weaver is a founding co-owner of Group 46:10. He has been working in the financing/real estate business for over 7 years. Fred began his real estate career by working for a large wholesale bank as a processor and rate/lock specialist for home mortgages. After 2 years in the business, Fred transferred from the banking side of home loans to the mortgage side. While on the mortgage side of financing, Fred gained experience originating mortgages and processing files for Morgan Capital of Arizona, Inc.
Kevin is a founding co-owner of Group 46:10. He began working in the real estate business in 2007 after spending 8 years working in the finance industry for companies such as Bank One, Green Tree Financial, & GE Capital.