The fact that "piggyback" second mortgages usually are not owned by those holding the main loans on houses may hinder efforts to rework loans, according to Federal Reserve Board researchers.

Lenders that granted piggyback loans in 2005 and 2006 held both the first and second loans only about 19% of the time at the end of each year, according to a study published in this month's Federal Reserve Bulletin.

Piggyback loans, which were popular during the U.S. housing boom, were often used in lieu of down payments or mortgage insurance.

Advocates for increased loan modifications, including Federal Deposit Insurance Corp. Chairman Sheila Bair, say using them to prevent foreclosures will help limit losses for mortgage holders and curb the worst housing slump since the Great Depression. Owners of second mortgages such as piggybacks typically must give their approval when the first mortgage is reworked or a pre-foreclosure sale is made for less than the homeowner owes.

The frequency with which the first and second loans were split up "means that for those loan transactions in which defaults occur, loss mitigation problems are likely to be more difficult," Fed economists Robert Avery, Kenneth Brevoort, and Glenn Canner wrote in the study. Other challenges to reworking delinquent debt include limits imposed by contracts governing mortgages packaged into securities, the lack of incentives for good loan performance at third-party mortgage servicers, and the soaring workloads at the companies managing outstanding loans, the study said.

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