US Mortgages to Be Further Subsidized by the Government

mortgagesThe US Treasury Department is considering giving banks and investors billions of dollars in fresh incentives to modify troubled mortgages and save homeowners from foreclosure, sources familiar with official deliberations said.

Under one scenario, investors in second liens would receive a cash payment if they agree to ease the terms of troubled loans and accept a smaller return on their mortgage investment, the sources said.

During the height of the housing boom, some borrowers were able to buy a home with no downpayment by adding a second lien and many of those loans are now failing as the economy and housing market struggle.

Some on Wall Street will likely be angry if Washington doles out money to investors who hold the high-risk end of a home loan.

“Second-lien holders should get zero,” said Bill Frey, president of Greenwich Financial Services in Greenwich, Connecticut. “Why should a second lien holder get anything if the first lien holder takes a loss? That’s not the way the contracts work, that’s not the way privatization works, that’s not the way America works.”

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