Worthless 2nd Liens Blocking H4H Refis, Banking Chiefs Say

Banks are holding up loan modifications by refusing to subordinate or extinguish second liens that are "virtually worthless," according to two powerful banking committee chairmen who want federal regulators to intervene. House Financial Services Committee chairman Barney Frank, D-Mass., and Senate Banking Committee chairman Christopher Dodd, D-Conn., contend that the banks don't want to recognize their losses on second liens and they are preventing borrowers with underwater first mortgages from refinancing under the FHA Hope for Homeowners program. "Carrying these loans at potentially inflated prices may contribute to resistance on the part of servicers to negotiate the disposition of these liens, and thus stand in the way of increasing participation in the H4H program," the chairmen say in a letter to the banking and thrift regulators. "We urge you and your staff to look into this issue as expeditiously as possible to ensure that we can achieve the vital goal of the H4H to help American families build equity and keep their homes," the July 10 letter says.