Frank Pressures Big Banks on Second Mortgages

House Financial Services Committee chairman Barney Frank, D-Mass., is calling on the CEOs of four major banks to work with the Treasury Department and banking regulators to deal with second mortgages that have become an obstacle to modifying troubled first liens. The four banks - Bank of America, Citigroup, JPMorgan Chase and Wells Fargo - hold $452 billion of seconds on their books. In a letter to the CEOs, Rep. Frank says many investors are willing to accept losses on principal writedowns of underwater first mortgages to prevent foreclosures. However, second-lien holders have become a "principal obstacle" to many modifications. "The problem of second lien-lien mortgages standing in the way of successful principal reduction modifications has reached a critical stage and requires immediate attention from your institutions," the March 4 letter says. Rep. Frank told a joint conference of minority real estate professionals that banks are reluctant to take writedowns because of accounting and regulatory capital issues. "The second liens in many cases are not worth anything," Rep. Frank said, adding that banks have not acknowledged it under the accounting rules. "At the point at which they acknowledge it, the bank's capital could be negatively affected," the chairman said. Rep. Frank said officials at Treasury, FDIC and HUD are trying to figure out how to deal with the accounting issues. They also are exploring incentives - such as giving second-lien holders a stake in the future appreciation of a property.