Bank of America announced that it signed an agreement to commit to the pending second-lien plan of the federal government's Home Affordable Modification Program (HAMP). The mortgage lending giant says its the first lender to do so. Bank of America has put systems in place to start implementing the Second Lien Modification Program (2MP) as soon as final program policies and guidelines by federal regulatory agencies are released. 2MP will require mortgage modifications that reduce the monthly payments on qualifying home lines of credit and fixed loans under certain conditions, such as the completion of HAMP modifications on the borrowers' first mortgages.

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Worthless Second Mortgages

This is a big step; in the past, the sticky wicket in the modification process or the short sale of property was often the holder of a junior lien against property. Because they are subordinate to or positioned behind the first mortgage holder, second mortgage lenders have little expectation of getting paid once the balance on the mortgages exceeds the value of the home and foreclosure becomes imminent.

What a Nuisance

Holders of home equity loans often deliberately hold up loan workouts to extract money from deals when their junior liens are technically worthless, claimed Dave Walker, chief credit officer of PennyMac Mortgage Investment Trust in a Business Week article. So their strategy is to exploit the loan's nuisance value and gum up the works until someone pays them to release the lien and go away. First mortgage holders are reluctant to reduce the principal balance on their first mortgage when the holders of second mortgages refuse to take any hit to the value of their own loans. Getting second lien-holders to the table may break the deadlock.