Citigroup (NYSE: C) announced on Thursday that it would join the government’s program to modify second mortgages, following Bank of America (NYSE: BAC), Wells Fargo (NYSE: WFC), JP Morgan Chase & Co (NYSE: JPM) and others, as the housing market appears to be at the beginning of a second downturn.
The Obama administration’s second mortgage modification program hopes to modify $75 billion worth of loans aiming at reducing monthly mortgage payments of distressed homeowners to help customers stay in their homes and avoid foreclosures.
Many believe that the housing market is at the beginning of a second down turn as home sales numbers are beginning to fall and as foreclosure rates are rising. The Federal Reserve is also planning on ending its support of the real estate market next week by terminating a program that has helped keep mortgage interest rates down. Some believe mortgage rates could rise by as much as 1% during the next several months.
During the housing boom, many homebuyers used second mortgages to help customers that made little or no down payment qualify for traditional mortgages. Homeowners with second mortgages have had difficulty in getting loan modifications because second mortgage holders often do not get paid in the event of a modification and have been vetoing borrower’s efforts to modify their primary mortgages.
The administration’s plan is to hope to eliminate the hurdle of second mortgages for some cash-strapped borrowers by offering lender incentives to lower payments or to eliminate the loans entirely.