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Second Liens Forgiven: Are You Kidding Me?

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  • Wed, Mar 04, 2009 - 09:30pm

    #1
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    Second Liens Forgiven: Are You Kidding Me?

Back to Chris’s "Obama Punishes the Responsible" post. How about this little hidden gem?

Deep deep in the pages of the [mortgage modification] plan, is paragraph vi. Second Liens: While eligibly loan modifications will not require any participation by second lien holders, the program will include additional incentives to extinguish second liens on loans modified under the program in order to reduce the overall indebtedness of the borrower and improve loan performance. Servicers will be eligible to receive compensation when they contact second lien holders and extinguish valid junior liens. Servicers will be reimbursed for the release according to the specified schedule, and will also receive an extra $250 for obtaining a release of a valid second lien.

http://www.cnbc.com/id/29513414

  • Wed, Mar 04, 2009 - 09:49pm

    #2
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    Re: Second Liens Forgiven: Are You Kidding Me?

I just saw that gem as well!

Must have slipped through the cracks:

http://www.recovery.gov/?q=content/accountability-and-transparency

[quote]"We cannot overstate the importance of this effort. We are asking the American people to trust their government with an unprecedented level of funding to address the economic emergency. In return, we must prove to them that their dollars are being invested in initiatives and strategies that make a difference in their communities and across the country. Following through on our commitments for accountability and openness will create a foundation upon which we can build as we continue to tackle the economic crisis and the many other challenges facing our nation." [/quote]

  • Wed, Mar 04, 2009 - 09:58pm

    #3
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    Re: Second Liens Forgiven: Are You Kidding Me?

Lisa,

That’s a great link. Thanks for finding that.

Forgive me, but I’ve taken the liberty of posting the whole article here because I think it’s important for people to read the whole thing in context and some folks don’t always follow the link.

It also reinforces my comments in the "Get out of Debt! Bad advice?" thread. The part I’ve highlighted below (bold/underline) definitely struck a nerve with me!

 

Second Liens Forgiven: Are You Kidding Me?
Posted By: Diana Olick

Amid
the dozens of pages of details of the Obama mortgage modification plan,
one new element will likely not make it into the headlines because it’s
something of an afterthought.

It has to do with second liens, that is piggy back loans or home equity lines of credit.

Deep deep in the pages of the plan, is paragraph vi. Second Liens: While
eligibly loan modifications will not require any participation by
second lien holders, the program will include additional incentives to
extinguish second liens on loans modified under the program in order to
reduce the overall indebtedness of the borrower and improve loan
performance. Servicers will be eligible to receive compensation when
they contact second lien holders and extinguish valid junior liens.
Servicers will be reimbursed for the release according to the specified
schedule, and will also receive an extra $250 for obtaining a release
of a valid second lien.

So
in an effort to help borrowers stay current on their newly modified
loan, which is at a nice new 31% debt to income ratio, the government
is also going to pay cash money to get servicers to totally wipe out
second liens. When I heard this I thought there might have been
something funky in my morning muffin.

It’s
not that I don’t get the reasoning. Sure, do all you can to help people
pay their mortgage, like get rid of other debt. By why stop there? What
about car loans? Student loans?? The second liens, in general, were
used by borrowers to either buy more home than they could really afford
or to use their homes as ATM machines. Yes, some people use home equity
lines of credit to pay college tuition.

But I can’t tell you how many homeowners I’ve interviewed (and just take a look at David Faber’s documentary House of Cards to see more)
who took out home equity lines to put in a pool or buy a fancy car or
put an addition on the house that includes a fancy new kitchen with a
Viking six-burner. And I’m supposed to pay for all that?

It’s
one thing to suck up the bitter pill in order to save the greater
housing market and keep families in their homes, but using taxpayer
dollars to give homeowners a free ride on second liens is preposterous.
The Obama administration talks a good long line about helping
“responsible borrowers.” Second liens can certainly be responsible, but
there’s a much much much greyer area in these loans when it comes to
actual “need”, and many many people used them irresponsibly.

In
fact, if Americans hadn’t taken quite so much money out of their homes
during the housing boom, we wouldn’t be in quite the underwater mess
we’re in right now.

© 2009 CNBC, Inc. All Rights Reserved
  • Wed, Mar 04, 2009 - 10:08pm

    #4
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    Re: Second Liens Forgiven: Are You Kidding Me?

The institution I work for has already said they will not be apart of this plan. They will only assist with the first mortgage. The bank will make more than 250 dollars if they continue to collect or charge off the home equity line. They can also foreclose on the second mortgage.

  • Thu, Mar 05, 2009 - 01:27am

    #5
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    Re: Second Liens Forgiven: Are You Kidding Me?

This is absolutely crazy. I can’t believe that rational people will stand for this.

 

Makes me want to PUKE.

 

Ken

  • Thu, Mar 05, 2009 - 03:13am

    #6
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    Re: Second Liens Forgiven: Are You Kidding Me?

[quote=lundsta]The institution I work for has already said they will not be apart of this plan. They will only assist with the first mortgage. The bank will make more than 250 dollars if they continue to collect or charge off the home equity line. They can also foreclose on the second mortgage.
[/quote]

lundsta,

I saw on MSM tonight that all banks who accept federal bailout money will be required to participate. Does that also apply to your institution?

  • Thu, Mar 05, 2009 - 03:58am

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    Re: Second Liens Forgiven: Are You Kidding Me?

I had heard that as well. The government must have a different definition for "required" than I do. About 4 weeks ago we had heard in our Home Equity Loss Prevention department that we would participate. However, since then the bank has found ways to go around it. I have seen a few ways. 1) If the account is investor owned then all parties involved are supposed to come up with a solution 2) If the bank can "prove" the borrower is still at high risk of default. 

I am in the heat of it all, but I hate how they keep creating false hope. And yes Wells Fargo has received bailout funds and is also deemed "too big to fail". 

The bottom line is I have not seen Home Equity accounts being forgiven, and they are making no plans to start. 

  • Thu, Mar 05, 2009 - 04:54am

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    Re: Second Liens Forgiven: Are You Kidding Me?

[quote=kenc]

This is absolutely crazy. I can’t believe that rational people will stand for this.

 

Makes me want to PUKE.

 

Ken

[/quote]

I know… me too!

  • Thu, Mar 05, 2009 - 05:21am

    #9
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    Re: Second Liens Forgiven: Are You Kidding Me?

[quote=lundsta]

I had heard that as well. The government must have a different definition for "required" than I do. About 4 weeks ago we had heard in our Home Equity Loss Prevention department that we would participate. However, since then the bank has found ways to go around it. I have seen a few ways. 1) If the account is investor owned then all parties involved are supposed to come up with a solution 2) If the bank can "prove" the borrower is still at high risk of default. 

I am in the heat of it all, but I hate how they keep creating false hope. And yes Wells Fargo has received bailout funds and is also deemed "too big to fail". 

The bottom line is I have not seen Home Equity accounts being forgiven, and they are making no plans to start. 

[/quote]

This whole thing is insane. I keep shaking my head in amazement but I’m going to have to stop.

I’ve been shaking it so much lately that it’s going to fall off! Tongue out

  • Thu, Mar 05, 2009 - 10:51pm

    #10
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    Re: Second Liens Forgiven: Are You Kidding Me?

Oh Baby,

How do I sign up? The Gov’t is going to forgive my HELOC? It don’t get any better than that. If you don’t get on the bus, you usually end up under it. They will rue the day they came up with this plan, and as a tax paying citizen who will soon be taxed even more next year, I’d be a fool not to take advantage of their misguided genorosity.

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