Residential lenders funded $124 billion in second liens in 2008, a startling — but not unexpected — decline of 70% from the prior year, according to new figures compiled by National Mortgage News and the Quarterly Data Report  QDR).

In 2006, nationwide second lien production peaked at $491 billion, the newspaper found. Up until early 2008 the second lien market continued strong, in part because of "80-10-10" or "piggyback" loan structures where lenders offered both a first and second lien to home buyers; the combination of loans had the effect of increasing the loan-to-value ratio to 80% while allowing the borrower to put only 10% down, and thus allowing them to avoid paying private mortgage insurance.

Also, rapidly increasing home values allowed home owners to tap equity, but now with real estate values down by as much as 50% (or even more) in some hard hit markets, the second lien business is limping along.

Some lenders have severely tightened requirements on home equity lines of credit while others have stopped making the loans altogether or through third-party loan brokers. In 2008, the top second lien funders were: Bank of America, Chase, and Wells Fargo & Co., the QDR found.

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