An official, who spoke to Reuters on condition of anonymity, said guidelines will soon be unveiled that aim to either modify or extinguish pesky second liens.
When Treasury announced its Making Home Affordable loan modification plan, it said it would include incentives for efforts made to extinguish second liens on loans modified under the program, but provided little detail.
At the same time, it said second mortgages would not be figured into the front-end debt-to-income ratio, making it easier for borrowers to qualify for the desired housing payment target of 31 percent.
Over the past few years, scores of borrowers relied upon piggyback second mortgages in place of traditional down payments, further expanding risky real estate speculation and homeownership.
As a result, many of these investors and homeowners had little, if any, skin in the game, making the decision to walk away that much easier, leading to an unprecedented number of foreclosures.
Those with second mortgages looking to refinance their first mortgages while keeping the second in place have complained about waiting months for the second mortgage holder to approve or even deny a re-subordination request, effectively killing the deal.
Mortgage rates on second mortgages are typically much higher than those on first mortgages because in the event of default, the first mortgage holder must be paid off before the subordinate lien holder.