Due to our economic crisis and the falling housing market many homeowners can no longer afford to keep up on their mortgage. Many of these homeowners who are struggling just to make ends meet have obtained a second mortgage that is no longer affordable. Even though the first mortgage (which is generally a much higher payment) may be affordable at this time, the increase in monthly payments due to the extra mortgage may cause a situation to get out of hand fast. these second mortgages often times complicate the process of trying to modify your first mortgage or even secure a refinance.
The 2nd Lien Modification Program (2MP) offers homeowners a way to lower payments on their second mortgage. 2MP offers homeowners, their mortgage servicers, and investors an incentive for modifying a second lien. Servicers and investors may also receive an incentive for extinguishing a second lien, forgiving all of the debt a homeowner owes.
Homeowners must provide consent to share their first mortgage modification information with their second mortgage servicer, if they are different. Since 2MP is meant to be complementary to the Home Affordable Modification Program (HAMP), a homeowner must have their first lien modified through HAMP before the second lien can be modified under 2MP. In this article we will explain the common requirements and process of this program.
2MP Loan Modification Process
When a borrower’s first lien is modified under HAMP, a participating second lien servicer must offer to modify the borrower’s second lien according to a defined protocol. In addition, if the borrower’s first lien is modified under HAMP, a participating second lien servicer must dismiss any outstanding foreclosure action on the borrower’s second lien. The 2MP modification offer may be prepared during the HAMP trial period for loans approved for a trial period plan under HAMP; or on or after the date the HAMP modification becomes effective with respect to any loan modified under HAMP. In addition, the permanent modification of the second lien under 2MP may not become effective unless and until the permanent modification of the first lien becomes effective under HAMP.
2MP Trial Period Requirements:
The borrower must demonstrate the ability and willingness to support the modified payment on the second lien; therefore, a trial period may be required based on the delinquency status of the borrower. A borrower’s delinquency status on the second lien is determined as of the date the 2MP offer is made to the borrower. When a borrower is current on the existing second lien and the current payment amount is equal to or greater than the monthly payment that will be due following the 2MP modification, a trial period is not required. The servicer and borrower may execute a modification of the second lien immediately following modification of the HAMP modified first lien.
When a borrower is not current (two or more payments are due and unpaid at the time of the 2MP offer), the borrower must enter a trial period plan with payments that reflect the terms of the proposed second lien modification. The trial period must be three months in duration (or longer if necessary). The 2MP trial period may run concurrently or overlap in time with the trial period for a first lien approved for a trial period plan under HAMP. However, since a modification of the second lien cannot be effective until the HAMP modification of the related first lien is effective, the trial period for the second lien may be longer than three months if it overlaps with the first lien trial period. If this occurs, the borrower must continue to make timely trial period payments throughout the trial period regardless of its length.
Loans may be eligible for 2MP if:
– the corresponding first lien has been modified under the Obama Administration’s Home Affordable Modification Program and the second lien servicer is participating;
– it was originated on or before January 1, 2009;
– it has not yet been modified under 2MP;
– it is not subordinate to a second lien or is not a home equity loan in first lien position;
– it is not a second lien on which no interest is charged and no payments are due until the first lien is paid in full; and
– the second lien servicer is in possession of a fully executed 2MP modification agreement or trial period plan by December 31, 2012; or the second lien is not insured, guaranteed, or held by a Federal government agency (e.g. FHA, HUD, VA, and Rural Development).
What about borrowers in bankruptcy?
Borrowers in active Chapter 7 or Chapter 13 bankruptcy cases are eligible for 2MP if the borrower, borrower’s counsel or bankruptcy trustee contacts the servicer to request consideration. With the borrower’s permission, a bankruptcy trustee may contact the servicer to request a 2MP modification. Servicers are not required to solicit these borrowers for 2MP when they are under bankruptcy protection. Borrowers who are currently in a trial period plan and subsequently file for bankruptcy may not be denied a 2MP permanent modification on the basis of the bankruptcy filing. The servicer and its counsel must work with the borrower or borrower’s counsel to obtain any court and/or trustee approvals required in accordance with local court rules and procedures.
A mortgage servicer may reduce the loan through 2MP by:
– Reduce the interest rate to one percent for second liens that pay both principal and interest (amortizing);
– Reduce the interest rate to two percent for interest-only second liens;
– Extend the term of the second lien to 40 years;
– If the principal was deferred (through forbearance) on the first lien, a servicer must forbear the same proportion on the second lien;
– If the principal was forgiven on the first lien, in accordance with the Principal Reduction Alternative program, a servicer must forgive the same proportion on the second lien; although a servicer may, in its discretion, forgive a larger portion or all of the second lien and will receive incentives for doing so.
List of mortgage servicers that are currently participating in 2MP:
Bank of America (including Countrywide)
BayView Loan Servicing, LLC
Chase (including EMC and WaMu)
Citi Mortgage, Inc.
iServe Servicing, Inc.
Servis One dba BSI Financial Services
Wells Fargo (including Wachovia)
Additional servicers may be added to the list so keep checking the Making Home Affordable website to see if and when your servicer will be participating.
If you are currently seeking a loan modification or have any other questions about this process please join our free forum here on LoanSafe.org. Here you will find all the information needed in regards to the loan modification process and any other type of loan workout you may be pursuing.
My name is Maurice “Moe” Bedard. I am the founder of America’s #1 Mortgage Forum, LoanSafe.org. My online work has been featured in the New York Times, LA Times, Fox Business, and many other media publications.