If you're struggling to make payments on a second mortgage, you're not alone. The robust housing market of the early-to-mid-2000s prompted millions to take out second mortgages on their homes as home-equity loans and lines of credit to finance home improvements and other large purchases. As the foreclosure crisis extends through 2010, second-mortgage defaults threaten to fuel the fire. There are steps you can use to get rid of that second mortgage you can't afford.
Contact your second-mortgage lender to see if an immediate solution is available. Explain the situation that made your second mortgage unaffordable. If you're in a temporary crunch, the lender might be willing to ease you through.
Apply for a refinance if you don't anticipate being able to resume regular payments in the near future. Refinance your second mortgage if there's a chance you can get one at a lower rate without affecting your first mortgage. Or refinance your first and second mortgages with a cash-out loan that would pay off both existing loans and result in a new first mortgage.
Assess your eligibility for the Making Home Affordable Modification Program for your first mortgage if you're not able to refinance, as a first-mortgage modification is a prerequisite to qualifying for a second-mortgage modification. Analyze your financial situation to see if you meet the following criteria listed by the Federal Trade Commission (FTC): the home is your primary residence; the balance on your first mortgage is less than $729,750; you borrowed the money for your mortgage before January 1, 2009; your first-mortgage monthly payment--including principal, interest, property tax, hazard insurance and homeowner association dues--is more than 31 percent of your gross income; and you are unable to pay your mortgage because of financial hardship. The FTC uses job loss and medical bills as examples of hardship.
Request your lender's assistance in applying for the modification. Prepare for the request by gathering financial information such as pay stubs, your most recent tax return, bank statements, investment account statements, copies of all your bills and any other documents that verify your income and expenses.
Assess your eligibility for the Second Lien Modification Program, requirements for which include an existing modification on your first mortgage; a loan servicer for your second mortgage that participates in the Second Lien Modification Program; and having not previously modified your second mortgage through the Second Lien Modification Program. The program can extend the term of your second mortgage to 40 years and reduce the interest to one percent, according to MakeHomeAffordable.gov.
Consider listing your home for sale if all other options fail. Contact your mortgage lenders to discuss the possibility of a short sale if your home is worth less than you owe on your first and second mortgages combined. A short sale isn't an ideal solution, but it's preferable to foreclosure.
Apply for modification programs even if you've been turned down before. Lenders have expanded eligibility for some programs.
Beware of scam artists who "guarantee" they can get your loan modified--for a hefty fee.
- FTC: Mortgage Payments Sending You Reeling? Here’s What to Do
- Making Home Affordable: 2nd Lien Modification Program (2MP)
- The Washington Post: Second Mortgages Complicate Efforts to Help Homeowners
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- Beware of scam artists who "guarantee" they can get your loan modified--for a hefty fee.
Daria Kelly Uhlig began writing professionally for websites in 2008. She is a licensed real-estate agent who specializes in resort real estate rentals in Ocean City, Md. Her real estate, business and finance articles have appeared on a number of sites, including Motley Fool, The Nest and more. Uhlig holds an associate degree in communications from Centenary College.