|
|
< Back
Piggyback Loans Complicate Workouts
12/29/2008
Piggyback loans – given to borrowers who wanted to avoid paying mortgage insurance without making a down payment – are “one of biggest reasons for the last 14 months why the voluntary [loan] modifications haven't worked," said Kathleen Day, spokeswoman for the Center for Responsible Lending.
About 40 percent of home purchases in 2006 involved piggyback loans, according to a 2007 Credit Suisse report.
When there are two loans from different lenders, neither lender has much incentive to work with the buyer because any loan modification will benefit a competitor. Moreover, "Borrowers with second liens have a much higher tendency of being overextended on their ability to make payments," said Tom Deutsch, deputy executive director of the American Securitization Forum.
Potential solutions include:
* Providing incentives to secondary lenders to write off their loans
* Assign the Treasury Department to buy up lower-cost second mortgages and work with borrowers
* Allow judges to modify second liens in bankruptcy proceedings.
Source: Boston Globe, Jenifer B. McKim (12/26/2008)
|
|
|
|
