While the mortgage industry currently focuses most of its attention on modifying first liens, more companies are going to start paying attention to second-lien modifications in 2011.
The Principal Reduction Alternative introduced in October by the Treasury Department for servicers participating in the Home Affordable Modification Program will create a brand-new wrinkle for the industry. If servicers are so inclined to use the PRA option on the first loans, they will now be obligated to do the same on second loans.
The very nature of second liens makes the modification process difficult to manage.
Often, a company other than the holder of the first lien holds the second lien, which in turn requires a different level of communication as well as a different process from what most servicers are accustomed.
Even if the second lien is with the same servicer, there are still formalities related to stakeholder compliance, risk analysis and record keeping to name a few.
This wrinkle is promising to cause additional unrest unless addressed properly, so many servicers need to turn to technology to help manage this new paradigm.
Technology will offer servicers workflow capabilities, reporting functions and communication methods needed to handle these loans.
Having this information about second liens handy while working on first liens is the key to ensuring that the modification goes as planned.
Technologies are available today that allow companies to link the related loans based on various linkable attributes, such as the same property address, same Social Security number, etc.
