Plan to ease the pinch of 2d mortgage

WASHINGTON - The Obama administration said yesterday it is expanding its plan to stem the housing crisis by offering lenders incentives to lower borrowers' bills on second mortgages.

During the housing boom, lenders readily gave out "piggyback" second loans that allowed consumers to make small down payments or avoid them entirely. While home prices soared, such mortgages were even extended to borrowers with poor credit scores and people who didn't provide proof of their incomes or assets.

Those loans, which are attached to about half of all troubled mortgages, have been an obstacle to efforts to alleviate the housing crisis.

That's because borrowers who are trying to get their primary mortgage modified at a lower monthly payment need the permission of the company holding the second mortgage to do so.

The new plan aims to get rid of that roadblock, administration officials said. "We're offering even more opportunities for borrowers," Treasury Secretary Timothy Geithner said in a statement.

Separately yesterday, the Senate voted 92-4 to hire 300 more FBI agents and prosecutors to investigate the 5,000 allegations of mortgage fraud reported each month.

The bill, sponsored by Sens. Patrick Leahy (D., Vt.) and Chuck Grassley (R., Iowa), would cost an estimated $265 million a year for the next two years. Supporters, including President Obama, say the legislation would more than pay for itself because of the fines and penalties that would result from more aggressive government investigations.

Currently, the FBI has fewer than 250 special agents assigned to financial fraud cases, despite caseloads that have more than doubled in the last three years.

New Jersey ranked 12th in 2008 among the 50 states in incidents of mortgage fraud reported to the Mortgage Asset Research Institute, which tracks the numbers for lenders. Pennsylvania was 37th.

The second-mortgage incentives announced yesterday would help up to an estimated 1.5 million borrowers, Housing Secretary Shaun Donovan said.

While data on how many households have been helped by the Obama administration's housing plans are not available, Donovan told reporters there have been "hundreds of thousands of applications."

The administration's second-mortgage initiative will be funded out of $50 billion in financial rescue money already allocated. As an incentive to modify second loans at lower interest rates, mortgage companies would receive $500 upfront for each modified loan, plus $250 a year for three years as long as the borrower doesn't default.

Similarly, borrowers would get up to $1,000 over five years applied to the principal balance of their primary mortgage. Lenders would also be given the ability to remove second mortgages entirely in exchange for larger government payouts.

The administration also plans to give mortgage companies $2,500 payments to entice them to participate in the "Hope for Homeowners" program. It was launched by the government last fall but has so far been a failure, proving unattractive to banks required to absorb large losses. Only one loan has received final approval.

The program has been stymied by high fees, complex regulations and a requirement that banks absorb large losses. Legislation is pending in Congress to ease those restrictions.