Gov't decides 2nd liens are as good as first liens

Lurking in a proposed mortgage fraud settlement with the state attorneys general is a clause that could be worth billions for the big banks. The proposed agreement — which is preliminary and subject to intense negotiations being led by Tom Miller, the attorney general of Iowa — would allow banks to treat second mortgages, like home equity lines of credit, just like the first mortgages. Under the... [more]

Lurking in a proposed mortgage fraud settlement with the state attorneys general is a clause that could be worth billions for the big banks. The proposed agreement — which is preliminary and subject to intense negotiations being led by Tom Miller, the attorney general of Iowa — would allow banks to treat second mortgages, like home equity lines of credit, just like the first mortgages. Under the proposal, when a bank writes the principal down on the first mortgage, the second should be written down “at least proportionately to the first.” So how is this a gift? Because when the principal on the first mortgage is reduced, the second lien is typically wiped out. The first lien holder has the first right to any money recovered, and the second lien holder has to wait its turn. The proposal “seems astonishingly generous to the second-lien holders,” said Arthur Wilmarth, a law professor at George Washington University. “And who are those? Of course, they are the big mortgage servicers.” And who owns the big mortgage servicers? The biggest banks. http://dealbook.nytimes.com/2011/03/16/in-proposed-mortgage-fraud-settlement-a-gift-to-big-banks/ [less]