I was recently introduced to a concept which is being loosely described as a “Dodd-Frank Certification,” by which homeowners can apparently get juniors liens (seconds, thirds, etc.) reduced or fully extinguished if they meet certain criteria. I heard about it in the context of someone who had gotten a letter in the mail from their lender informing them, that if they returned the signed “Dodd-Frank Certification,” their second lien would be fully extinguished. Huh? This was news to me. (But then again, I don’t really do loan mods, so a lot of this stuff is murky to me.) Anyhow, so I started researching it, and this is what I found: 1. If your FIRST has been modified through the HAMP Program, then you MAY be eligible for a modification of the second under the 2MP Program, whether or not that lender wants to cooperate. 2. If the 2MP Program kicks in, then the lender either gets a lump sum payment from the US Treasury in exchange for fully extinguishing the loan (i.e., discharging, forgiving, writing off) or it may be compelled to modify the second along similar lines as the first was modified under HAMP. 3. The Dodd-Frank Certification is merely the piece of paper that the lender gets from the borrower which it, in turn, must provide to Uncle Sam to show that it dotted its I’s and cross its T’s and is entitled to the payment. And all the Dodd-Frank Certification says is that:
- Your first mortgage was modified under HAMP.
- You have not have been convicted within the last 10 years of felony larceny, theft, fraud or forgery, money laundering or tax evasion, in connection with a mortgage or real estate transaction.
- You have not missed three consecutive monthly payments on your HAMP modification.
So why would a lender do this? Easy:
1. The first is under water, so the second is completely unsecured.
2. If the borrower defaults on the HAMP modification–which happens frequently–then the most likely outcome is a bankruptcy, in which the holder of the second won’t get anything anyhow.
3. If the borrower defaults on the HAMP modification–which happens frequently–then the next most likely scenario is a short sale, in which the holder of the second won’t get anything anyhow.
So if you have modified under HAMP and you get a Dodd-Frank Certification in the mail? Sign it and return it. Unless you’ve bee convicted of something in the past 10 years…In which case you’d now be adding perjury to the list of problems.