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Regulators: Time to crack the whip on second mortgages

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Federal regulators on Wednesday called on banks to get serious about modifying second mortgages, which are proving to be a Gordian knot that has tied up modifications and other foreclosure alternatives, such as short sales. “Servicers should be required to take a meaningful write-down of any second lien if a first mortgage loan is modified or approved for a short sale,” said Federal Deposit Insurance Corp. Chairman Sheila Bair at a Senate hearing to investigate the latest round of mortgage-handling problems. For the past two years, investors in mortgage-backed securities have complained that the nation’s largest banks too often consider how various modifications will affect their second liens when they service mortgages. The nation’s four largest banks—Bank of America, Wells Fargo, J.P. Morgan Chase, and Citigroup—own nearly half of all outstanding second liens and also service nearly half of all first mortgages.

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