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Michael van der Galien

The Difficulty of Modifying Second Mortgages

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Posted on January 9 2010 3:00 pm
Michael van der Galien was born in the Dutch city of Leeuwarden in 1984. For as long as he can remember, he has been obsessed with the United States. When he was 17 years old, he started blogging - of course about America. His articles have been published at Big Hollywood, Pajamas Media, Hot Air (the GreenRoom) and Right Across The Atlantic. He's also an editor for the Dutch conservative blog, De Dagelijkse Standaard.
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In order to do a short sale–or much of anything short of foreclosure–you need to get the second lien holder on board. This is even harder than getting your first mortgage holder to help you, since there’s usually nothing in it for the second guy in line except a sure and certain loss. The Obama administration has made some efforts to pull the second lien servicers into the process, but the results have been even more pitiful than the single-loan modification process.

This was a problem in the Great Depression, too, though the conflict was less between banks than between individuals who often issued or bought individual mortgages as investments. No good way to resolve the problem was found, and thus it is still with us. I’m toying with the notion that we should ban second mortgages by any except the first mortgage holder, but this would turn the first mortgagee into an effective monopolist, and also effectively kill securitization.

Read the whole thing at Megan McArdle’s blog at The Atlantic.

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