Lowell Deeds

The latest on real estate recordings and new technology from the Middlesex North Registry of Deeds in Lowell

December 26, 2008

Piggyback mortgages

by @ 11:10 am. Filed under Archived, Real Estate

The Globe today writes about “piggyback loans”, those instances where borrowers obtained two mortgages to finance the purchase of a house. As home prices rose towards the stratosphere during the recently ended real estate boom, the two-mortgage approach occurred more often than not. Splitting the purchase price between two mortgages did a number of things: it allowed many to borrow 100% of the purchase price; by keeping the amount of the first mortgage down as a percentage of the total sales price, it eliminated the requirement that the buyer purchase Private Mortgage Insurance; and for the lenders, it produced that many more mortgages that could be farmed out to investors. The problem now is that as many of these homeowners find themselves in fiscally untenable positions, their ability to work out a modification of their mortgage payments is much more complicated because there are now two lenders involved, and what’s in the best interest of lender 1 is often damaging to lender 2 and vice versa.

Our own research has long disclosed the prevalence of this style of lending. In our study of foreclosures conducted in Lowell during 2007, we found that 72% of the foreclosed mortgages that were used to purchase the property involved second mortgages and that the majority of those constituted the entire balance of the purchase price meaning that the borrower put no money down on the transaction. We also found that of the foreclosed mortgages that were used to refinance the property - meaning the borrower already owned the property but obtained a new mortgage that was used to payoff the balance of the first mortgage and provide extra cash for the household - also involved an additional mortgages. A full 36% of the refinanced mortgage foreclosures also had an additional mortgage - popularly called a “line of credit” or “home equity loan” encumbering the property.

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