1% Mortgage Rates

1% mortgage rates? Yes, is the Treasury Department just announced the Second Lien Program which will help homeowners with their second mortgages.

The Second Lien Program is part of the Obama Administration’s Making Homes Affordable ( MHA) Program designed to help the housing market recover and keep people in their home who are facing foreclosure.

An estimated six million people are expected to face foreclosure over the next several years. 50% of those people facing foreclosure have second mortgages. Second mortgages sometimes make modifying or refinancing first mortgages more difficult, even preventing a change in first mortgage terms because the second lienholder objects to the modifications.

This program might help 1 million to 1.5 million home owners reduce their mortgage payments. The government, rather you the tax payer, will share the cost for this program along with lenders. The pay-for-success incentive used for the first mortgage modification programs will also be used for the Second Lien Program.

Servicers can be paid $500 up-front for a successful modification and then success payments of $250 per year for three years, as long as the modified first loan remains current.

Borrowers can receive success payments of up to $250 per year for as many as five years. These payments will be applied to pay down principal on the first mortgage, helping to build the borrower’s equity in the home

For amortizing loans (loans with monthly payments of interest and principal) the government will share the cost of reducing the interest rate on the second mortgage to 1 percent.

Afer five years, the interest rate on the second mortage will step up to the then current interest rate on the modified first mortgage, subject to the Interest Rate Cap on the first lien, set equal to the Freddie Mac Survey Rate.

For interest-only loans the government will share the cost of reducing the interest rate on the second mortgage to 2 percent.

Here is an example of how this program is designed to work from financialstability.gov.

In 2006: Family B took out an interest-only second mortgage with a balance of $60,000, an interest rate of 4.4%, and a term of 15 years.

Today: Family B has $60,000 remaining on their interest-only second mortgage because none of the principal was paid down.

Under the Second Lien Program: The interest rate on Family B’s interest-only second mortgage will be reduced to 2% for five years. This will reduce their annual interest payments by $1,440.

After those five years, Family B’s mortgage payment will adjust back up and the mortgage will amortize over a term equal to the longer of  the remaining term of the family’s modified first mortgage (e.g. 27 years if the first mortgage had a 30 year term at origination and was three years old at the time of modification) or  the originally scheduled amortization term of the second mortgage.