The Obama government in line with its “Making Home Affordable Program” put into the place the Parallel Second Lien Program to help honest home owners combat the growing financial pressure and stay in their homes longer and achieve greater affordability. These 2nd lien efforts are being taken to help home owners keep their houses and in tandem combat the growing US foreclosure situation and stabilize the housing market which in turn will strengthen the economy.

Main Aim Of The Second Lien Program

The Parallel Second Lien Program is designed to work in tandem with the first lien program under the HAMP guidelines (Home Affordable Modification Program). Numerous borrowers who are at risk of being foreclosed upon already have second mortgages and are under stress. The Obama Government in order to rectify the situation has brought in to effect the Second Lien Program. Under the 2nd lien program once the first lien has been modified in accordance with the Home Affordable Modification, lenders who are partaking in the parallel second lien mortgage must automatically reduce the payments on the second mortgage to a pre-set protocol. In addition to this the lenders who have issued the second mortgage will have the option of extinguishing the second mortgage altogether. This lump sum payment will be a calculation based on a formula which has been devised by the US treasury. The aim as you can see in on the principal portion of the loan more than the interest.

Second Lien Loan Modifications

The government fully understands that even with a second lien mortgage, borrowers are at risk of losing their homes should they have an unaffordable second mortgage. In order to obliterate this risk the government has taken the following steps:

• Amortization Of Loans: The interest rate is kept at 1% for the first five years and is then increased to the same as that on the first mortgage following the loan modification. In addition to this second mortgage is so created that it matches the term of the first mortgage after it has been modifies while making room for principal forbearance in the same proportion as the first mortgage.
• Interest Only Loans: In the case of interest only loans, the interest is kept at 2% for the first 5 years and is then increased to match that of the first mortgage after it has been modified. Once again the interest only loan is amortized to suit the first mortgage and is expected to make room for principal forbearance the same as the first mortgage.

Second Lien Mortgage Features

Some of the other features of the parallel second lien program are mentioned below:

• The 2nd lien program also entails some thing known as incentive payments. Put simply this means that in addition to the fact that borrowers receive a loan modification they also receive incentive payments of $250 per year for the first five years which can be credited to their mortgage payments.
• Lender can extinguish the 2nd lien loan altogether by accepting a large lump sum payment which is calculated on the basis of the formula devised by the US treasury.

These are some of the features of the parallel second lien program as incorporated by the Obama government in accordance with the “Making Home Affordable Program”.

References:

1. Obama Administration Announces New Details on Making Home Affordable Program – U.S. Department of Treasury
2. Making Home Affordable Second Lien Program – My Dollar Plan
3. Obama mortgage plan has some issues – Market Watch, The Wall Street Journal