Calculated Risk: Report: HAMP Second Lien Modification Program “On Hold”

To call this an asinine idea would be insulting to asinine ideas:

The Second Lien Program announced today will work in tandem with first lien modifications offered under the Home Affordable Modification Program to deliver a comprehensive affordability solution for struggling borrowers. Second mortgages can create significant challenges in helping borrowers avoid foreclosure, even when a first lien is modified.

via Calculated Risk: Report: HAMP Second Lien Modification Program “On Hold”.

Here’s why: the seconds are all toast. They go up in smoke before the firsts because seconds only collect after first mortgages get their piece of the payout/distressed sale first. As an example if you bought a $300K house with an 80/15/5 strategy (80% 1st lien, 15% second, 5% equity), the second lien was in jeopardy as soon as the losses on the home’s value exceeded 5%. So in most areas, where we’ve seen 20-30% losses in home values, the second mortgages – i.e. the piggyback loans – are dead in the water and the first liens are taking their dents.

So if the seconds were taking losses before the program was initiated, we don’t really need to try and throw money at them now. That’s just pointless. Almost all of them have a 100% loss rate. Up in smoke. Kaput. Done. Light a fire with a stack of $100 bills, it will get you to the same place.

And these people are being paid to solve our “housing crisis?”



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Filed under finance, government, You're kidding

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