Treasury will tackle second lien mortgages


Today, the U.S. Treasury Department is tapping into a $50 billion housing rescue fund in order to pay off some mortgage investors and cut monthly payments for millions of borrowers. Mortgage firms owning a small stake in second lien mortgages will receive a cash payment that will either ease or reduce the debt, and people paying the loans will get lower interest rates.

What kind of mortgages are these? Second lien mortgages were used to help some borrowers buy a house with no down payment by adding a second lien. This type of loan usually has a higher interest rate than a primary mortgage, and many people paying these loans are now struggling and will benefit from lower rates. According to a department official, "The second lien holder, as is appropriate in the junior position, is taking more of a reduction in interest rate . . . The interest rate will go at least as low as the interest rate on the first and it will (fall) much further to get there."