Loan Modification for 2nd Mortgage Without Modifying the 1st Mortgage

by Rescue
(Sacramento, California)




We have 1st and 2nd mortgage. We do not want to modify first since we have 3.35% interest rate. But second is bad it is 8%.
To make things worse 1st and 2nd together are about $80k higher than the appraisal; so, we have negative equity.
The second itself is about $100k.
We are current, never missed payment.
If we could modify second and extinguish $80K out of that (so we get zero equity instead of negative) we would accept the difference of $20K as the modifed second mortgage.
Is this possible?
Is it possible to modify the 2nd mortgage without modifying the 1st mortgage?

If not, we think of giving up, walking away and foreclosing. When house is sold 1st mortgage would get settled at zero loss or some loss but 2nd mortgage holder (btw it is different than the 1st mortgage holder) would take complete loss since there will be nothing left for them to settle. Since we are in California (a non-recourse state) 2nd mortgage holder can not go after us if we foreclose. We would like to stay if modification is possible but with negative equity there is no motivation - we need to be rational. Negative equity of $80k is a big load.

Any advice, comment?


Mortgage Loan Modification Answer:

You didn't mention that you are experiencing any hardship beyond the fact that your property value is underwater by 80k. Since you mentioned that you have never been late and are current on your mortgages, I'm going to assume that you are able to afford your monthly payments.

However, you are willing to walk away and let the bank foreclose as an option unless your 2nd mortgage is modified. If your 2nd is a refinance loan as opposed to a purchase loan, I believe your 2nd mortgage lender can file a deficiency judgment against you in California. There's no recourse on 1st mortgage purchase money loans for a primary residence, but refinanced 2nd mortgage loans are not treated the same way.

I have not heard of anyone being able to get a lender to modify their second mortgage without the first mortgage being modified at all. What I have heard from people in your similar position is getting the lender to change their adjustable rate into a lower fixed rate on their second mortgages. Is your 2nd mortgage on an adjustable rate? Why not ask your 2nd mtg lender what they are willing to do as far as rate or pricipal reduction?

You may want to speak with your tax accountant as well as an experienced foreclosure attorney to confirm what the consequences are, tax and liability-wise if you choose to strategically default on your loan.

I myself would rather do a short sale than a foreclosure if in the same position. But even with a short sale, the tax and liability consequences are similar, but at least a deficiency judgment can be waived if negotiated properly during a short sale. The IRS tax consequences for debt forgiveness on a refinanced 2nd mortgage, however, may be inescapable. This is where you would need expert advice from a qualified attorney and tax accountant.

Please come back and let us know the outcome of whatever route you choose to take. Visitors to this site will greatly benefit from any information you can share.

All the best to you and your family.




Comments for Loan Modification for 2nd Mortgage Without Modifying the 1st Mortgage

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Jun 27, 2011
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My second was modified FIRST
by: Anonymous

I am in a highly unusual circumstance apparently! Our second mortgage offered and accepted a modification. Our FIRST is now up to bat! We did NOT modify the first, first! We are not behind on payments of either, we do have financial hardship since both of us are now disabled and debt continues to rise due to medical expenses.
My question is this...and no one seems to be able to answer it...since the 2nd mortgage modified, is the first mortgage REQUIRED to modify?

I have not seen anything like this. We were very happy that our second sent us paperwork out of the blue (not being behind, but current on payments) they streamlined the mod and went through within less than 60 days.

How do I get the first to modify? Our first is with ALS and they are now leaving automated messages on our answering machine that it looks like we qualify for a modification..even though they flat out turned us down in '09 after a year long fiasco of jumping through there hoops.

How do I handle this? We need the mod on the first more than ever now.

Any help here would be appreciated!

Nov 16, 2010
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2MP without 1st HAMP by: Dean
by: Dean

You seem to imply that your first mortgage is a variable rate. One of the purposes of HAMP is to convert to a fixed rate. It may be worth pursuing the conversion of the 1st to a fixed rate under HAMP. Even though the interest rate will be higher than your variable rate in the long term interest rates will rise well above 5%.

You have to demonstrate a hardship, loss of job for a period of time, decreased income or increase expenses. My understanding is the 31% rule applies to all mortagage payments. First, Second, plus insurance and taxes. You do not have to be underwater to demonstrate a hardship. So demostrate the hardship, apply for HAMP and once First HAMP is done do 2MP.

If you have additional questions, please reply to this post.

Nov 09, 2010
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2nd mod without 1st
by: Rescue

Both 1st and 2nd are part of the purchase before Jan 1st, 2009. 1st is variable and it is FHA; 2nd is not FHA. 2nd is 8%, 15 years balloon loan, and the interest is killing us. If we go with HARP (we talked to 1st mrtg servicer) then the 1st mrtg rate jumps from 3.375% close to 5% - since we are underwater they can not give us even 4%, so that is not a good option. And HAMP is not working for us since our rate just dropped last month from 5.5% to 3.375%, and now we are bellow 31% front-end DTI. So we are not good there. And we can not use 2MP for it requires modification of the 1st and there is no good option for the 1st.
2nd mrtg servicer does not want to change the 2nd mrtg on its own.
No matter what, which side we turn to, it is a wall. Walking away appears the only thing that makes sense. That will ruin the credit record but maybe is it is worthy for $80 K. Any other suggestion?

Nov 09, 2010
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2MP without 1st HAMP
by: Dean

One of the specific requirements of HAMP is that the 2nd mod can be initiated after completion of the 1st Mod

You did not mention your loan origination dates to qualify for HAMP. They must be before Jan 1, 2009. Any refi after that date does not qualify for HAMP, but after one year seasoning may qualify for lender in house programs.

You may contact HOPE for home onwners 888-995-HOPE. They are very helpful.

Are you an FHA loan, conventional??? Look into HARP
http://makinghomeaffordable.gov/borrower-faqs.html

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