Federal aid targets second mortgages

During the housing boom, lenders readily gave out "piggyback" second loans that allowed consumers to make small down payments, or avoid them entirely. While home prices soared, such mortgages were even extended to borrowers with poor credit scores and to people who did not provide proof of income or document their assets.

But those loans, attached to about half of all troubled mortgages, have been an obstacle to efforts to alleviate the housing crisis. That's because borrowers who are trying to get their primary mortgages modified at a lower monthly payment need the permission of the company holding the second mortgage.

The new plan aims to get rid of that roadblock, administration officials said. "We're offering even more opportunities for borrowers," Treasury Secretary Timothy Geithner said.

The new incentives are estimated to help up to 1.5 million borrowers with second mortgages, Housing Secretary Shaun Donovan said. While data on how many household have been helped by the Obama administration's housing plans are not available, Donovan told reporters there have been "hundreds of thousands of applications."

The administration's second-mortgage initiative will be funded out of $50 billion in financial rescue money already allocated. As an incentive to modify second loans at lower interest rates, mortgage companies would get $500 upfront for each modified loan, plus $250 a year for three years as long as the borrower doesn't default.