Second Lien MortgageMortgage second mortgage
Before the extension of Making Home Affairs to second liens, the first lien providers would carry all the financial consequences of interest cuts, main interruptions and changes without the corresponding interest cuts, main interruptions or changes being necessary for the corresponding second lien providers who are in a lower ranking first.
In addition, the presence of a second lien may raise the total amount of total recurring mortgage over and above a level acceptable to a borrower, which increases the probability of recovery, even if the borrower's first mortgage repayment has been amended to be acceptable. It is the intention of the Second Lien Program to make sure that both the first and second pledgees are fairly and fairly given the precedence of their lien and to reduce the probability that the debtor will fall behind with the amended First Lien mortgage loans.
Second Lien Programs facilitates the automated change of a second lien when the second pawnbroker participates in Second Lien Programs when a first lien is changed under Making Home Affairs Lien. The Second Lien Programme is, however, a volunteer programme running alongside the First Lien Amendment Programme under Making Home Affairs.
Therefore, if the second lienor does not choose to join the Second Lien Program, there is no need for the second lien to be automatically modified. Approval by the U.S. Treasury Department ("Treasury") does not refer to the conditions under which the changes necessary under the Second Lien Program are forbidden under the conditions of the applicable maintenance agreement.
As part of the First lien programme Making Home Affordable, service employees who participate in the Making Home Affordable programme may not make any changes required under the programme if such changes would be forbidden under the maintenance agreements. Unless a similar limitation is incorporated into the Second Lien Programme, attending Second Lien Service Providers would have the opportunity to violate their service agreements in order to meet the Second Lien Programme requirement.
Moreover, the clearance does not include detail processes for the exchange of information and notifications between independent first and second lien servants to allow them to co-ordinate the implementation of the first and second lien changes. The Treasury should give further instructions as to who is competent to notify the second pawnbroker and to make available to the second pawnbroker the information on the first change of lien required for the implementation of the second change of lien (e.g. first pawnbroker or borrower) and on the date relating to those commitments.
As part of Making Home Affairs Amendments to First Lien Mortgage, the service providers who participate in the Second Lien Program are obligated to amend the relevant Second Lien Mortgage in accordance with the following procedures: Redemption loans: First, lower the interest to 1 per cent; second, prolong the maturity to correspond to the maturity of the first mortgage by amortising the amount of capital you have not repaid over a period equal to that of the first mortgage; third, waive the capital in the same ratio as for the first mortgage, with the possibility of cancelling the capital according to the redemption schedule (see below); the second lien will then be amortised over the remainder of the second lien at the higher interest rat.
To encourage changes in the amortization of second lien loan amortization, Treasury shares costs with the second lien owners by making incentives to these owners equivalent to half the differential between (i) the interest rates on the first lien mortgage modification and (ii) 1 per cent, unless there is a lower limit.
In the case of pure interest credits: First lower the interest to 2 per cent; after 5 years, the interest will rise to the then prevailing interest rates for the amended first mortgage, reserving the interest ceiling for the first mortgage at the Freddie Mac Survey Rates. Second lien interest-linked borrowings are amortized over the longer residual life of the first lien modification mortgage or the initial expected payback period, beginning at the date specified in the initial covenant.
Whilst the factsheet published by the Treasury Department states that a second lien amended credit will commence redemption at the date specified in the initial agreement, on the basis of the case study provided by the Treasury Department3 and the wording of the press brief, it is not clear when redemption will commence on credits that would have commenced to repay capital during the five-year term in which the interest rates were lowered to 2%.
Perhaps this would mean that the second lien would have to be written off again at the end of the five-year horizon when the interest rates rise. To encourage changes in single interest lien mortgages, the second lien holder will be incentivised by the Ministry of Finance to pay half the amount of the differential between (i) the lower agreement interest for the second lien and the changed interest for the first lien and (ii) 2 per cent, unless there is a lower limit.
Rather than changing a second lien, lenders/investors of the second lien can choose to cancel the second lien and obtain a deposit from the Treasury. The Treasury should make it clear that this is a one-off advance which is not contingent upon the first lien remaining valid for a specified amount of money.
If necessary, this allows the second pledgees to carry out the main cancellation in a targeted manner. In the case of a second lien loan that is more than 180 Days overdue at the date of the amendment, the Ministry of Finance shall reimburse the second lien creditor for 3% of the outstanding amount. In the case of credits less than 180 day overdue, the Ministry of Finance shall reimburse the second pledgee the amount indicated in the following table (the "Redemption Schedule") for each U.S. Dollars of the undisbursed capital balance:
Approval does not provide detail as to when the back-end debt-to-earnings and second-line loan-to-value measures are to be calculated and which methodology is to be used to measure the value of the real estate. Probably the backend relationship of debts to revenues will be the same as that established under the first lien programme. Much like the modification of the first lien under Making Home Affordable, the Second Lien Programme contains incentives for Second Lien service providers and creditors who participate in the Second Lien Programme to better coordinate their interests.
Service personnel will receive $500 in advance for a successfully completed upgrade plus $250 per annum performance fees for three years as long as the upgraded first mortgage remains valid. Mortgagors will receive performance fees of up to $250 per annum for up to five years to disburse the capital for the first mortgage.
It is not clear, however, whether Service Provider incentives will be paid to Service Providers who do not participate in the Second Lien Programme but decide to change their own Second Lien credits on a voluntary basis in accordance with the Second Lien Programme. Service personnel who participate in the Making Home Affordable Programme must rate all borrower qualifying for changes under Making Home Affordable to refinance under Hope for Homowners.
In the event that a Mortgagor is suitable for Hope for Homeowners funding, the Service Provider is obligated to provide the Mortgagor with an opportunity to fund the Mortgagor under Hope for Homeowners. In component, serviceman are necessary to evaluation for the funding low anticipation for residence businessman those recipient who are cheap in the attempt writing discharge low fitness the dwelling and message the funding to those recipient if they qualification.
Hope for Homowners does not allow a debtor to refinance into a Federal Housing Administration ("FHA") secured credit unless subordinated pledgees relinquish their rights of lien on the home. Accordingly, if a debtor has subordinated pledges, the usefulness of the integration of Hope for Homeowners into Making Home Affairs may be restricted if the second lien holder does not willingly waive their subordinated lien.
Where the second lien holder would be eligible for a destruction plan settlement by cancelling the second lien under Making Home Affairs, but not as a consequence of the extinction of a second lien in relation to a re-financing, this would be an inducement for the second lien holder (on whose name the second lien provider is acting) not to cancel the second lien under Hope for Homeowners. 2.
The Ministry of Finance should determine whether the redemption plan repayments also qualify for Hope for Homeowners funding. Attention is also drawn to the fact that if the destruction plan payment is not available to the second pledgees who have terminated their second pledge to ease Hope for Homowners funding, this could lead to a clash of interests between service providers and second pledge loan takers.
However, such a possible dispute could arise because all Hope for Homowners funding incentive is granted to the service provider of the funded first mortgage credit (which in many cases will also be the service provider of the corresponding second mortgage credit) and to the creditor of the Hope for Homowners credit (which in many cases will also be the service provider or a subsidiary of the service provider).
Payment to second pledgees under the destruction plan in conjunction with refinancing under Hope for Homowners would resolve this dispute and reconcile the interests of service providers and second pledgees. Latest breaking stories have shown that on April 16, 2009, more than six month after the launch of Hope for Homowners, only one house owner made it all the way through the programme and was funded into an FHA-insured credit.
In order to further enhance the efficacy of Hope for Homowners, the Obama administration has declared that it plans to back the law to, among other things, lower the charges to be levied by debtors on the FHA and enable debtors with higher debts to obtain qualifications. Presumably this would make Hope for Homowners a more sustainable and affordable one.
Service personnel and creditors who participate in Making Home Affordable, which helps borrowers fund themselves under Hope for Homeowners, are entitled to the following pay-for performance incentives: Creditors who obtain new Hope for Homowners funded borrowings are entitled to performance fees of up to US$1,000 per annum for up to three years as long as the funded borrowing continues to be as is.