Regulators Put Pressure on First and Second Lien Holders

Federal regulators are working on ways to match holders of delinquent and/or modified first mortgages with the holders of seconds in an effort to improve communication between the two parties so they can restructure loans. According to a Comptroller of the Currency/Office of Thrift Supervision report, it is often difficult to obtain good lien information when the firsts and seconds are held by different entities. In a new report, the agencies say, "Initiatives are now under way to make this information more available." Banks and thrifts that provide data for the agencies' "Mortgage Metrics Report" have large second lien portfolios but nearly 90% of the corresponding first mortgages are securitized or held by other investors. OCC and OTS note that banks and thrifts are required to review second liens when the first is delinquent or modified and "hold appropriate loan loss reserves to reflect the elevated risk" of default or loss. Regulators alerted institutions to this long-standing accounting requirement in a December 2009 notice.