Executives from the nation's four largest residential servicers told Congress on Tuesday that their firms will accept "proportional" modifications on second liens but only when a first mortgage is modified and the principal reduced in a similar fashion.
The four mega-servicers signing on to the government's second lien modification program (2MP) include Bank of America, Citigroup, JPMorgan Chase and Wells Fargo. Together, these four firms control 60% of the residential servicing market, according to figures compiled by National Mortgage News.
The 2MP program will become operational this fall. In testimony before the House Financial Services Committee, Wells Fargo Home Mortgage (WFHM) co-president Michael Heid agreed that his company will make proportional modifications, "especially under the 2MP program."
He noted that WFHM last year completed 50,000 principal forgiveness modifications on first liens but "did not condition that based upon on what the second-lien holder did."
The 2MP guidelines do not specifically require principal reduction but is part of the program's internal "logic," according to Bank of America Home Loans president Barbara Desoer. "Our recommendation is to further advance 2MP from principal forbearance on a shared percentage basis across the first and the second-to principal forgiveness," she testified.
Besides being the four largest servicers in the nation, the banks also hold an estimated $425 billion of second liens on their books. Committee chairman Barney Frank, D-Mass., had accused the banks of holding up modifications of first mortgages by refusing to modify their seconds. But on Tuesday Frank seemed pleased by the testimony. He noted that calling a hearing can produce results.