Another reason NOT to have a 2nd mortgage. Lenders screwing homeowners on 2nds.

[dixiegrrrrl]

"A new foreclosure tactic, whereby lenders or debt collectors holding second mortgages freeze bank accounts or garnish pay checks of already struggling homeowners, is emerging and making it even more difficult for people to hold onto their homes."

It isn't supposed to work like that. See, that's the point of a capital structure - the first (secured) lienholder gets his, and if (and only if!) there's something left, the second gets what they can.

This is why a first mortgage is typically cheaper than a second, among other things.

If the subs are allowed to pull stuff like this then the damage to the first mortgage market could be tremendous - and result in a significant repricing of risk - and thus rates - upward.

Of course it's the government that started this crap with Chrysler, GM and others. Ignoring capital structure in order to favor certain politically-connected parties at the expense of those who (rightfully) paid for preference through lower coupon rates looked smart (for those who were trying to curry favor with those interest groups - cough-UAW-cough!)"

more @
http://market-ticker.denninger.net/archives/P3.html
( last story on the page, scroll down to: Priority? What's That?

[Tansy_Gold]

1. Can you repost this?

Tomorrow (Thursday) in the Stock Market Watch thread in LBN?


Tansy Gold

[dixiegrrrrl]

4. I will try to cross-post in comments.

I think that is what I hear you asking.
Yeah..will write myself a note.
Denninger's explanation of why this is a problem is a must-see, he does it much better than I ever could, and he freely supports the sharing of his information.

good to see ya, Tansy.:hi:

[Tansy_Gold]

5. yes, that's exactly what I mean

A lot of Denninger's stuff is posted there, but I wanted to make sure this got in.


It's scary out there. My house is paid for, but both my kids have mortgages (no seconds) and this shit scares the daylights outta me.

:hi:


TG

[FBaggins]

2. There' really nothing new there.

It's called the right of offset. If you have a savings account with a bank that has $500 in it and you overdraw your checking account by $250 and refuse to make a deposit to clear that up... they have the ability to settle up by taking it out of your savings.

Unlike a first mortgage, a high percentage of seconds are at the customers' own bank. So it's more likely that there are assets there (checking/savings/etc) to take if you don't pay your 2nd. They can't actually "garnish pay checks" - but the effect is the same if your check is direct-deposited to the bank that you owe money to.

It's by no means a new tactic. It's just that far more people are having trouble making their payments.

It's like borrowing $20 from a loan shark and, after telling him you can't pay him back, asking him to hold some cash for you.

[FBaggins]

3. Goodness.. my mistake.

Sorry folks. The link doesn't tell the whole story (but links to it). This is actually about OTHER banks or collection companies doing it by getting a court order.

That is "new" (or at least unusual previously) because the holder of the second used to be able to hold your home over your head if you didn't pay. Now they can't because the home is likely not worth enough to leave them anything once the first lien holder takes their cut.

However, just as the author notes that the rate is higher (than a first) because there is more risk to the bank... it's LOWER than an unsecured loan because of that lien. Just because they can foreclose, however, doesn't mean that they can't use other standard collection techniques. It sounds like they went to a judge and demonstrated that the debt was owed and got an order to take other assets and got a judgment.

It certainly sucks.

[unblock]

6. sorry, that IS the way it's supposed to work.

having a second lien does not mean you are powerless until the first lienholder takes action. if that were the case, you could completely blow off the second loan until the first loan was retired in 30 years.

the only thing the second lienholder can't do is take proceeds from a foreclosure in advance of the first lienholder.


typically, second mortgages have shorter durations than first mortgages, so they get out before the first loan is completely due.

sure, the second lienholder should try to make a reasonable workout with the homeowner if possible, but the article quoted is quite naive on the subject.