Announcing Wednesday that it was participating in the Obama administration’s Second Lien Modification Program (2MP), Wells Fargo became only the second major servicer after Bank of America, to agree to participate in the program.
As I stated in a recent post, it has been obvious to me in the field, that most homeowners underwater on their mortgages really have no realistic chance of keeping their homes when they have a second mortgage that refuses to make a modification. It just doesn’t make much sense to have the first lien take the big gulp–reduce the interest rate and in some cases, even principal–and have the second mortgage continuing to get 10-12% and not be required to participate. Considering that in a short sale or foreclosure scenario the second lien holder is almost always wiped out, it only makes sense for them to participate in the modification process to increase the odds of long-term success for everyone.
Now here is the real beauty of 2MP. When a borrower’s first lien is modified under HAMP and the servicer of the second lien is a 2MP participant, that servicer must offer either to modify the borrower’s second lien according to a defined protocol or to accept a lump sum payment from Treasury in exchange for fully extinguishing the second lien.
Under 2MP, if a servicer/lender is part of the program, they are required to contact the borrower and notify them of their opportunity for relief if their first mortgage lender is also part of HAMP. Right now, this means that just Wells Fargo and BofA will be cooperating if they share the same borrower but there are likely to be many more servicers joining the 2MP program. Hopefully we will be seeing more cooperating lenders making the kind of payment resets under 2MP that result in realistic adjustments for homeowners.
Nevertheless, we will still be seeing far more homeowners unable to qualify for modifications and who will be instructed by their lender to proceed with a short sale in lieu of letting the property go to the auction block.
Here is the original article.
