The Second-Mortgage Shell Game


In implementing mortgage settlements, government should require banks to give relief on first mortgages, which is more likely to keep people in their homes.
Op-Ed (NATIONAL, New York)

Elizabeth M. Lynch
New York Times (NYT)
February 27, 2013
Link to story

Tags: Housing: Foreclosure

Organizations mentioned/involved: Mobilization for Justice (New York City)


DETAILS

A lesser-known but equally grave problem is that banks have been given a backdoor mechanism to continue foreclosures at the same pace as before.

The problem involves second mortgages, which millions of homeowners took out during the housing bubble….

The second mortgages have given the banks a loophole: each dollar a bank forgives goes toward fulfilling its obligation under last year’s settlement. But many lenders have made it a point to almost exclusively modify secondary loans while all but ignoring the troubled, larger primary mortgages.

It’s a real problem: when it comes to keeping your home, it’s the first mortgage that counts.
***
So a lender can forgive a second mortgage — which in the event of foreclosure would be worthless anyway — and under the settlement claim credits for “modifying” the mortgage, while at the same time it or another bank forecloses on the first loan. The upshot, of course, is that the people the settlement was designed to protect keep losing their homes.