The Second-Mortgage Shell Game
The second mortgages have given the banks a loophole: each dollar a bank forgives goes toward fulfilling its obligation under last year’s settlement. But many lenders have made it a point to almost exclusively modify secondary loans while all but ignoring the troubled, larger primary mortgages.
It’s a real problem: when it comes to keeping your home, it’s the first mortgage that counts.
Take Tiberio Toro, a Queens resident who took out an 80/20 mortgage in 2006 when he purchased his home, and who now owes far more to the bank than his house is currently worth. Recently, Wells Fargo told him that it completely forgave his second loan. But at the same time, it declined to modify his first mortgage — an adjustment Mr. Toro needs to get his monthly payment to a level he can afford.
Why would a bank forgive a second mortgage completely but move forward with foreclosure on the first mortgage?
Surprisingly, such a tactic often makes sense for banks. When a lender forecloses on a first mortgage, the house in question is typically sold at auction. If the house is worth less than the loan amount, the bank gets only part of its money back. But after the sale, of course, there’s no asset left to pay off any of the second loan. The holder of that second loan — which has lower priority than the holder of the first — gets nothing.
Full article here…