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Even After Foreclosure, Second Mortgages Still Come Back To Haunt Former Homeowners

Because the Obama administration was more interested in propping up bad banks, they didn't push for mortgage cramdowns that might have helped homeowne

Because the Obama administration was more interested in propping up bad banks, they didn't push for mortgage cramdowns that might have helped homeowners in situations like this. And because the banks are still playing shell games with devalued assets, we've only pushed the day of reckoning into the not-so-distant future:

After losing her condo in San Diego to foreclosure last year, Charissa Kolich thought that at least she was free of mortgage bills.

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But Wells Fargo & Co., which holds a home-equity loan made five years ago to Ms. Kolich, last month filed a lawsuit against her in the Superior Court of California, San Diego County, seeking to collect the nearly $72,000 it said she still owed on that second mortgage. "This was all kind of a shock," says Ms. Kolich, a food-service administrator recently diagnosed with inoperable brain cancer.

Banks are coming under increasing political pressure to write off or at least write down second-lien and other junior mortgages as a way to help borrowers keep their homes or extract themselves from heavy debt. As the Wells Fargo suit shows, however, banks often are reluctant to give up on loans when they see a chance of recovering all or part of their money.

This issue will be the focus of a hearing Tuesday by the House Financial Services Committee in Washington. Panel members are due to quiz executives from Wells Fargo, Bank of America Corp., Citigroup Inc. and J.P. Morgan Chase & Co. about their junior-lien mortgage policies.

Why do junior-lien mortgages matter? The $1 trillion of junior-lien mortgages outstanding in the U.S. at the end of 2009 added up to only about 10% of total home-mortgage debt, according to Federal Reserve data. But many banks have large holdings of these junior liens. Among borrowers whose first mortgages were packaged into so-called private-label securities (those not backed by any government entity), about half also have junior-lien loans, according to mortgage-bond trader Amherst Securities.

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