Now, mortgage modifications can include second mortgages — not just first mortgages — and cash incentives are sweetening short sale deals, thanks to new efforts by the Obama Administration.

The new efforts give some homeowners a second shot at a home-saving loan modification, especially if they were originally turned down — or turned off — because the second mortgage (piggy back, home equity loan or line of credit, etc.) impeded the process.

Other homeowners may now be able to take the short sale escape route from unaffordable mortgages that could otherwise wind up in foreclosure.


Here’s the scoop.

Second mortgage modifications

Under Making Home Affordable’s new second-lien program, borrowers whose first mortgages are modified will automatically have payments reduced on their second mortgages as well, provided the first and second-mortgage lender participates in the program.

Twelve mortgage servicers currently do. Among them are large banks including, Bank of America, Wells Fargo, Countrywide, Citibank, Chase and others.

Eligible homeowners looking to modify their first mortgage must be an owner-occupant of the home; have an unpaid principal balance that is no more than $729,750; have a loan that was originated on or before January 1, 2009; have a mortgage payment (including taxes, insurance, and home owners association dues) that is more than 31 percent of their gross monthly income; and have a mortgage payment that is not affordable, perhaps because of a significant change in income or expenses.

For the second mortgage, in addition to lowering the payment, lenders can also opt to erase a borrower’s second mortgage in exchange for a lump-sum payment from the government.

New short sale incentives

Short sale incentives were among recent refinements to the Obama administration’s housing rescue programs.

In a short sale the lender closes the mortgage in return for whatever sale price the homeowner can net. However, the difference is sometimes considered income for which the selling homeowner is taxed.

Under the new short sale incentive, lenders can receive a $1,000 payment from the U.S. Treasury for allowing the owner to sell the house for less than the amount owed on the mortgage and accepting the proceeds as full repayment, rather than a short sale.

Lenders can also receive $1,000 for accepting a deed-in-lieu transaction, in which the deed is simply transferred to the lender instead of going through a costly foreclosure.

Homeowners who agree to short sales or deed-in-lieu deals can receive up to $1,500 in closing costs. To help stop second mortgages from blocking the deal, the Treasury will pay second lien holders up to $1,000 to relinquish their claims in such transactions.

To learn more about these options visit MakingHomeAffordable.gov

For more loan modification and short sale news that really hits home, see DeadlineNews.Com’s complete coverage of loan modifications and short sales.

Also use Examiner.com’s search box on this page. Type in “MakingHomeAffordable.gov” (without the quotes) to find a host of news on the Obama Administration’s efforts to ease the housing crisis.

Created On: Monday, 16 Mar 2009, 7:16 AM MDT

Gary Heinlein / Detroit News Lansing Bureau

LANSING –The State House passed a package of bills Wednesday to give homeowners facing foreclosure a 90-day reprieve to seek loan modifications with the firms that hold their mortgages.

The three bills, passed by margins of more than two-thirds, represent a top priority for lawmakers because of Michigan’s foreclosure crisis. The state had 145,000 foreclosures last year–seventh most in the nation–and 11,000 more of them in January alone.

The bills now go to the Republican-led Senate, which approved foreclosure relief measures that filed to win legislative approval late last year.

The legislation would permit those facing foreclosure to ask for loan-modification discussions with officials of the companies that hold their mortgages. A borrower, who formally asked for a meeting with the mortgage holder, or loan servicer, would get three months to work out a new agreement.

If negotiations didn’t result in a loan modification, the legislation would require a modified mortgage payment amount based on a Federal Deposit Insurance Corp. “workout program.”

If the FDIC calculation showed the borrower was eligible for a loan modification, the lending institution would be barred from going ahead with a non-judicial foreclosure. But it could take the foreclosure to court.

“This is a huge step forward for Michigan’s families,” said Rep. Andy Coulouris, D-Saginaw, who helped craft the package of bills as head of the House Banking and Financial Services Committee. “Every time a home is foreclosed, everyone is hurt.”

The legislation is opposed by bankers and lenders, who object to mandated judicial proceedings when a lending institution and borrower can’t agree to new terms.

Rep. Darwin Booher, R-Evart, a former banker, said while he generally supports the bills, such a provision could balloon costs associated with foreclosures, and courts would be jammed if even as many as one-fourth of last year’s foreclosures ended up in judicial proceedings.

Most foreclosures currently are carried out without court proceedings.

“It’s economic stimulus to the trial lawyers,” Booher said.

The legislation would apply to foreclosures under Chapter 32–foreclosure by advertisement–in which the first notice had been published in a newspaper after the legislation had gone into effect. Once signed into law, the legislation would remain in effect for two years.

You can reach Gary Heinlein at (517) 371-3660 or gheinlein@detnews.com.