Wells Fargo has become the second bank to agree to modify second-lien mortgages under the government's Home Affordable Modification Program (HAMP) providing mortgage relief for at-risk homeowners.

The lender joins Bank of America in agreeing to modify second mortgages for homeowners who have obtained HAMP modifications on their primary home loans. The program will be available to customers who have second liens through either Wells Fargo or Wachovia, which was acquired by Wells Fargo at the end of 2008.

"The Second-Lien Modification Program offers struggling homeowners with yet another valuable option for reducing payments so they can remain in their homes," said Kevin Moss, executive vice president of Wells Fargo's Home Equity Group. "This program is an important component of joint industry and government efforts to bring further stability to the housing market."

Mortgage servicers participating in the HAMP second lien program agree to automatically modify second liens for customers who have completed requirements for HAMP modifications on their primary mortgages. Second liens modified under the program will have their monthly payments reduced according to a pre-determined formula or the mortgage servicer may opt to extinguish the lien in return for a lump sum payment.

The Obama administration estimates that as many as half of all at-risk mortgages have at least one additional lien. It predicts the second lien program will assist between 1 - 1.5 million homeowners.

The program is expected to help the large number of homeowners who took out "piggyback" loans as a way of making a down payment, a common practice prior to 2006 when home values were rising steadily. It will also be available to homeowners who took out home equity loans to borrow against the heightened value of their property in those days.

Lenders participating in the second lien program agree to reduce the interest rate on second liens to either 1 percent or 2 percent, depending on whether the loan is amortizing or non-amortizing, and reduce principal on the loan in at least the same proportion as principal was reduced on the principal lien. The term of the loan will also be extended to match the term on the principal lien, unless it already exceeds it.

After five years, the interest rate on both the primary and secondary mortgages will reset to a market rate determined by rules set out under the primary loan modification.

Published on March 19, 2010