Here is the pdf of the fact sheet on the new program announced yesterday to help people modify their second mortgages. Below are some important excerpts:
We estimate up to 50 percent of at-risk mortgages currently have second liens. By offering homeowners a way to lower payments on their second mortgages through our Second Lien Program, we may potentially reduce payments further for up to 1 to 1.5 million homeowners, accounting for up to 50 percent of participants in the Home Affordable Modification Program, as well as maximize the effectiveness of our first lien modification program. The program ensures that first and second lien holders are treated fairly and consistent with priority of liens.
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These new details on the Second Lien Program and the integration of Hope for Homeowners mark ongoing progress of the Making Home Affordable Program in improving mortgage affordability for responsible homeowners and keeping more Americans in their homes.
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For amortizing loans (loans with monthly payments of interest and principal), we will share the cost of reducing the interest rate on the second mortgage to 1 percent. Participating servicers will be required to follow these steps to modify amortizing second liens:
– Reduce the interest rate to 1 percent;
– Extend the term of the modified second mortgage to match the term of the modified first mortgage, by amortizing the unpaid principal balance of the second lien over a term that matches the term of the modified first mortgage;
– Forbear principal in the same proportion as any principal forbearance on the first lien, with the option of extinguishing principal under the Extinguishment Schedule;
– After five years, the interest rate on the second lien will step up to the then current interest rate on the modified first mortgage, subject to the Interest Rate Cap on the first lien, set equal to the Freddie Mac Survey Rate;
– The second mortgage will re-amortize over the remaining term at the higher interest rate(s); and
– Investors will receive an incentive payment from Treasury equal to half of the difference between (i) the interest rate on the first lien as modified and (ii) 1 percent, subject to a floor.
For interest-only loans, we will share the cost of reducing the interest rate on the second mortgage to 2 percent. Participating servicers will be required to follow these steps to modify interest-only second liens:
– Reduce the interest rate to 2 percent;
– Forbear principal in the same proportion as any principal forbearance on the first lien, with the option of extinguishing principal under the Extinguishment Schedule;
– After five years, the interest rate on the second lien will step up to the then current interest rate on the modified first mortgage, subject to the Interest Rate Cap on the first lien, set equal to the Freddie Mac Survey Rate;
– The second lien will amortize over the longer of the remaining term of the modified first lien or the originally scheduled amortization term, with amortization to begin at the time specified in the original contract;
– Investors will receive an incentive payment from Treasury equal to half of the difference between (i) the lower of the contract rate on the second lien and the interest rate on the first lien as modified and (ii) 2 percent, subject to a floor.