Some Lenders will no longer be offering second mortgages soon.Part of the big mortgage melt down problem is the invention of the 80-10-10.Greed took over and we moved to the 80-20. This could have been the root of the evil.

     When the industry started do 80-10-10 mortgages, the borrower would typically go to two different lenders, one for the first mortgage and one for the second mortgage.There were two separate mortgages fees and closings.It was expensive and difficult to put together, but it became industry practice.A few years later, the first mortgage lenders saw how much interest income and junk fees were being made by the second mortgage lenders.They decided to jump on the bandwagon and offer both loans to close simultaneously.When the prime rate began falling, the lenders would entice borrowers with all sorts of gifts to take a second mortgage at the time of closing.

     As the rates began to creep up, these lines of credit were not so fabulous and the borrowers were begrudgingly paying twice the amount of interest on money they should not have spent in the first place.So brings on late payments, etc.

     Lenders have become concerned and are pulling back on offering two loans simultaneously.They will allow you to take a second mortgage somewhere else.And so, we have to get back in the car and do two closings!Back to basics.What is next?The resurrection of PMI?

– Dale Siegel