Are Second Mortgages the Achilles Heel of a Housing Recovery?

Most Realtors and anyone who has participated in a Short Sale transaction can empathize with this often considered "Road block" in the closing.
Many banks due to being in 2Nd position would much rather risk foreclosure and losing everything rather than settling for $3,000 offered by most 1st mortgage lien holder and letting the seller sell their home.
Why is that you ask?
Well.....
1) Rather than a mere $3k, the write-off can often times be much greater than settling for a flat rate
2)By not releasing the lien the 1st mortgage may fold and agree to settling with the 2nd/additional lien holders for what they ask.
3) And, in some cases the Seller, Buyer or Realtors may be asked to make up the difference in order to close the loan.

Either way do not be fooled into thinking that the 2nd will lose out if they do not comply. they understand there position is just as important when to all parties who are looking to be relieved of their obligation to the property in negotiation.

Read this article for a more detailed report.
And, if you are looking to buy or sell your home, contact the agent who truly, believes in the American Dream of the White Picket Fence,

Call Me!

Tayona Tate, CSP, ABR
690 Queen Way
Sparks, NV 89431
(775) 762-8355
yourpickettfence@cs.com



Are Second Mortgages the Achilles Heel of a Housing Recovery?



Housing analysts are drawing more attention to one big problem that’s making loan modifications less successful and drawing out efforts to pursue short sales and other foreclosure alternatives: The presence of second mortgages such as home equity loans and lines of credit.

Today’s Heard on the Street in the WSJ concisely explains why there’s a problem: Second mortgages stand behind the first lien and are supposed to take the first loss in a modification or short sale, and in the event of a foreclosure, they’re likely to be worthless, particularly if the home is underwater. Karen Shaw Petrou, an analyst at Federal Financial Analytics, concludes that most second mortgages “are nothing but air” because of big home price declines.

Second mortgages are held primarily by banks, and writing down seconds en masse would cause substantial losses at a time when banks are trying to boost their weakened balance sheets. Of some $1.05 trillion in second mortgages, $963 billion are on the balance sheets of commercial banks, savings institutions and credit unions, according to Amherst Securities, and around $442 billion sits with the nation’s four big banks. (For more on individual banks’ exposure to second mortgages, see this December article–subscription required–from American Banker.)

But most modification activity centers on first mortgages, which are held by both banks and other mortgage investors, including government-owned mortgage-finance giants Fannie Mae and Freddie Mac. Today’s Heard notes:

If a borrower with a first mortgage and a home-equity line gets a modification on the senior loan, he or she has more money to pay the junior debt. The first-mortgage holders suffer, while the junior-mortgage holder, nearly always a bank, benefits.

Around half of all first mortgages in private-label pools of mortgage-backed securities have a second mortgage, according to research from Laurie Goodman, a mortgage analyst for Amherst Securities. Modifications would likely see lower rates of re-default, she notes, if second mortgages were modified along with the first. And while there hasn’t yet been a major push to modify loans by reducing principal, the second-lien hurdle will loom even larger if principal writedowns become more commonly adopted. It’s hard to envision investors who hold first mortgages surrendering to principal writedowns if the second mortgage holder doesn’t also have to bite the bullet.

Second mortgages are also a big stumbling block on short sales, where the borrower sells the home for less than the value of the amount owed. Real-estate agents have complained for months that many of these deals fall through because the second-lien holder isn’t willing to approve the deal, or is requiring more money from the transaction.

If you’ve got a short sale or modification that’s been tied up by a second mortgage, drop us a note: nick.timiraos@wsj.com.