Barney Frank, Chairman of the House Financial Services Committee, has called for second mortgage holders to write down these loans in order to relieve pressure on the problem of underwater mortgages.  Once second mortgages are written down it becomes possible for more first mortgages to be restructured into safer conventional plans at current market value.

Frank’s letter of concern has gone to the major second mortgage underwriters, Bank of America, JPMorganChase, CitiGroup, and Wells Fargo. Frank argues that homeowners are often eager to save their homes, but complex negotiations between mortgage holders often lead to frustration and failure.  The result is that homeowners often choose to walk away from their mortgages because it has become impossible to get the multiple mortgage holders to cooperate on the restructuring of a loan.

Frank’s committee has found that, while homeowners and first lien holders are often in agreement on a write-down so that the mortgage can be restructured closer to current market value, the hang-up is often the second mortgage holder who is holding out for full repayment of the home equity line of credit.  Second lien holders are allowed to hold these loans at artificially high values and so, unlike the first lien holders, there is a disincentive to modify these loans.

Only Bank of America has signed on to participate in the second mortgage write-down component of the new HAMP program due to begin early in April. The other major second mortgage lenders have not agreed to scale back on these mortgages.