In April, the administration estimated that "up to 50percentt of at-risk mortgages currently have second liens". Second liens contribute to the number of American homeowners unable to afford their housing payments.
Housing finance experts have expressed concern that principal reduction would unfairly benefit the banks that own many of those second liens, with some calling for second liens to be wiped out if the first lien gets cut.
Refusing to face reality on second liens ultimately hurts shareholders.
But they do often hold second liens on their books.
Many delinquent borrowers have second liens, mortgage industry executives say.
Never mind that the second liens are worthless and should be written down to zero.
But by forgiving the second liens, the bank at least gets credit for "helping" the borrower.
If the second liens are performing, the bank doesn't book a full loss on them.
With no principal reduction, the banks would have to write off many of those second liens.
Of the roughly $12 trillion mortgage market, $1 trillion is in second liens.
JPMorgan Chase's exposure to second liens stood at $60 billion at the end of the second quarter.
