What is happening on the second mortgage market?
Answer:Currently, the availability of 2nd mortgages on the second mortgage market has diminished as compared to 2005 when everybody took a piggyback loan. Second mortgages have history in being used to avoid PMI premiums. However, if the borrower defaults, the second lender, if different from the first, is hardly able to achieve any return. Thus, with the excruciating foreclosure rate, lenders have less incentive to offer second mortgages.
This is how poor credit borrowers with no cash for down payment couldn't make use of second mortgage loans to supplement their down payment funds.
Even though second mortgages are available on the market to good credit borrowers, foreclosure rates are rising among them, too. Some lenders have even decided to cease purchasing second mortgage and home equity loans.
Restrictions on second mortgage requirements are tightened by three times more banks, compared to 5 months earlier. 80% of the banks have stopped offering subprime loans, including 2nd mortgages.
It is expected that in 2008 the problem with ARMs resetting to a higher rate will be even more severe, second mortgages and home equity loans being part of the problem.
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