Getting a Loan Modification for Your Second Mortgage

Last year, getting a loan modification for a second home was close to impossible - with two different parties holding stake, there wasn’t much chance for a second mortgage to get approved. But thanks to new changes in President Obama’s home loan modification program, people who have second mortgages in default can now get the help they need. Read on to learn more about getting a federal loan modification for second mortgages, and how you can make the most of it.

Who’s in it?
The program is voluntary, but most major lenders have already signed up and more are expected to join in. To find out whether your lender is taking part, call up the bank’s loss mitigation department—it’s the office that usually takes care of loan modification plans. If they’re not part of it, chances are they offer a different program for second mortgages.

How does it work?
The government encourages lenders to participate by offering a $1,500 incentive for every home loan modification they approve. Upon getting approved, borrowers will also get a $500 upfront payment and additional $250 over the next three years, credited against their outstanding balance, provided they do not default again during the period.

How does it change my mortgage?
The home loan modification can reduce your interest rate to as low as 1% for as long as five years. The numbers may vary according to factors such as your income, your current balance, and your payment history. Other loan modification plans also exist, such as a principal reduction or an extension of loan terms. The type of assistance you get depends on how well you can negotiate with your lender and the current state of your mortgage.

How do I qualify?
The qualifications for a second home loan modification are more or less the same as for a primary home. First of all, you need to present a valid hardship to justify falling behind—a medical emergency, job or income loss, or a death in the family. The lender will most likely assess you based on your debt-to-income ratio—the total amount of debt you have versus your total monthly income—so you may also need to present a source of income.

Getting a second loan modification can be complicated, but it’s not difficult. If you’re considering a home loan modification on your second mortgage, you may want to work with a loan modification attorney—a professional who can guide you through the whole process from application to signing day. Look for one with specific experience in your area and property type, and make sure to plan ahead to ensure the best results.