Full Second Lien Extinguishment Used 22 Percent of Time in 2MP
April 9, 2012
As Treasury clarified last week that it would use its Principal Reduction Alternative program to write down Fannie Mae and Freddie Mac loans, it released data regarding the success of that program and others in the Making Home Affordable family.
The PRA has started 72,481 trial modifications through February 2012, with 15,587 of the trials currently active. Of the 51,732 permanents mods started, a little over 48,000 of them are still active.
Should the Federal Housing Finance Agency assent to the government-sponsored enterprises getting involved in principal reductions (though it remains a contentious issue), the number of PRA participants is bound to grow.
Regardless of what the GSEs decide on principal reductions, Treasury’s tripling of HAMP incentives is designed to drum up more activity for the program. So how much should homeowners expect to see in reductions?
The median principal reduction the PRA grants is $68,523 for active permanent mods, which amounts to 31.4 percent of the principal reduced.
Many of these loans also have a second lien, which complicates matters. Accordingly, the Treasury has a program – the Second Lien Modification Program – to modify the second lien. 2MP has led to controversy because the second liens held by major servicers are allowed to be written down to the same degree as the first, instead of being extinguished altogether as traditional lien hierarchy dictates.
The Treasury data shows that of the 113,774 eligible second liens, participating servicers have started modifying 71,133 of them – 62.5 percent. While 2MP allows for full lien extinguishments, only 15,631 of the mods, or 22 percent, actually involved them. The median amount of the full extinguishment was $61,553.
It’s easy to see why the 2MP participating servicers, which include Bank of America, Citi, JPMorgan, Wells Fargo, GMAC and more, prefer partial extinguishment to the whole kit and caboodle. The median amount for partial reduction is $6,936, a little less than a tenth of the write down.
Expect more details about the servicers’ individual performances in this week’s Inside Mortgage Finance.