Talking to one lender about loan modification is hard, how about adding home-equity loans to the picture. If the first and second mortgage cannot agree the homeowner is at greater risk for foreclosure.
Home-equity loan is a mortgage where the borrower’s house is used as collateral, secondary to a primary mortgage. SMR Research found out that as of June 30 home-equity loans reached $1.05 trillion.
Also called second-lien lenders, home-equity loans fall behind mortgages. This means that lenders cannot claim a forfeited home-equity loan by taking over a house unless the borrower does not have another loan. It is just parallel that the six big home-equity lenders have $2.75 billion uncollectible.
During the peak of the housing industry, when houses still has high value, home-equity loans are beneficial to the lender. In case of foreclosure, selling the expensive home can compensate more than is actually obligated.
But with the downfall of the housing industry, foreclosure resell is not enough to pay for the mortgage, nothing for the second lien lenders.
The fear of foreclosure is more heightened than ever so the government pushes lenders and investors to help the foreclosure-troubled. But home-equities had made this a challenge.
Having to go through the process of loan modification by decreasing balance, or lowering interest or prolonging terms of agreement is already a tedious task. What more having a home-equity loan.
Lenders, or the first lien think that by adjusting loan terms gives a window to also pay off second lien lenders. With the desire to receive compensation, home-equity lenders can be more aggressive. Conflict can arise making the process more difficult, making foreclosure loom closer.
Hope Now, a group of lenders and counselors, asks both liens to fix the problem together. The federal Hope for Homeowners project enhances Hope Now’s point by letting the first-lien lender pay the home-equity lenders, thereby making the first-lien policymaker. Though there are still some hitches in the process, it has been successful so far.
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