Second mortgages have been a fickle friend to U.S. homeowners. First they freed-up cash, but then they became an increasing burden as unemployment rose, and home values faltered.
Help for your second mortgage is out there, but be ready to do some legwork to find it. First, get to know the Second Lien Modification Program (2MP), which works with President Obama's Home Affordable Refinance Program (HAMP). While 2MP has been slow to assist homeowners since its 2009 launch, it's gaining traction with a growing list of participating servicers.
Second mortgage modification
The most attractive feature of the 2MP program is the automatic qualification for eligible homeowners who satisfy three main requirements:
- They already have a HAMP modification on their first mortgage.
- They use a participating servicer on their second mortgage.
- Their second mortgage has not previously been modified through 2MP.
Participating servicers include Bank of America, CitiMortgage, GMAC Mortgage, Greentree Servicing, Wells Fargo, and others. A complete list is available here.
Under 2MP, the servicer can extend the loan term to 40 years, and can temporarily reduce the interest rate to as low as 1 percent. Use a mortgage calculator to see how these actions would impact your monthly payment. If the payment is still out of your reach after those adjustments, a 2MP modification will not be a permanent solution.
If you already have a HAMP modification on your first mortgage, contact your second mortgage servicer directly to inquire about 2MP. If you don't, call your first mortgage servicer to see if you're eligible for one.
If you don't qualify for 2MP, ask your second mortgage servicer about an in-house modification. Your servicer might be motivated to modify your loan without 2MP assistance, because it's expensive and tedious for the second lien holder to recover its funds if you fail to pay. Knowing this won't help your case, however, because you're hardly in a position to strong-arm your servicer, and such tactics won't work anyway. Your best course of action is to take a collaborative approach. Contact the servicer, explain your situation, and inquire politely about the prospects for an in-house modification.
More desperate measures
Even if the servicer won't offer a modification, you have options. Some servicers respond to modification requests by presenting a reduced payoff amount. If you can borrow the money from your family, or take an advance from work to pay off the loan at a discount, this may be a feasible option. Alternatively, your servicer might agree to a temporary forbearance if your financial troubles are short term.
There are some situations where the second mortgage servicer won't budge. In this case, think in terms of increasing your income rather than lowering your mortgage payment. Can you rent out a room in your home, or start a weekend business? While these aren't ideal solutions, they can help you avoid a foreclosure battle or continued harassment by your second mortgage servicer.
Making amends with your second mortgage debt can take creativity and determination. If you can't get help from your servicer, you may just have to help yourself.