Comments on: Treasury Department’s “Making Home Affordable” Program Attempts to Tackle 2nd Lien Dilemna

By: John Broad

John Broad — Wed, 10 Jun 2009 20:04:13 +0000

I have two seperate lenders for the 1st mortgage and the second mortgage. I can’t get the holder of the first mortgage (B of A) to contact the second lien holder and get the ball moving on the overall loan modification. Any suggestions.

By: Kathleen Scanlon

Kathleen Scanlon — Fri, 01 May 2009 15:20:16 +0000

Well, Under this Program yes Bank B will be required to modify the second and they have the authority to do so if Bank B signs up with the Treasury to participate in the Home Affordable Program.
Lets see if it works because the second lien holders have been hard and many homes end up going to auction because of them

By: Michael Schneider

Michael Schneider — Wed, 29 Apr 2009 17:29:55 +0000

The bsaic thought is that the second lien is tied in lockstep to the modification of the first, following the precise schedule established by the Treasury.
The terms seems sound and reasonable, frankly. Financial institutions with large ‘troubled’ second lien portfolios on their balance sheets will, I reckon, need to take substantial write-downs. I haven’t estimated the NPV of the modified cash flows, but if we take the range of 3% to 12% in the schedule for extinguishing, then the write-down is going to be large.
Terrible for regional banks with home-equity loans on portfolio. But, probably just forces the inevitable, which is probalby part of the objective of the Treasury.
Here’s the part I don’t know, perhaps you can provide some insight:
Suppose the first is securtized and serviced by Bank A, and the second is on portfolio of Bank B. Bank A modifies the first.
The value of the program would seem to be that Bank B is required to modify the second, whenever the first modified.
So, under the program is Bank B required to modify the second? And if so, does the Treasury really have the authority to require Bank B to modify?
cheers,
michael schneider