Return of the piggyback loan

by Kelli Rogers05 Jul 2013
Piggyback loans, which fell from favor during the housing downturn, are slowly making a comeback as home values start to pick up, several industry leaders have said. 
Piggyback mortgages – when a borrower takes out a second mortgage in the form of a home equity or line of credit – accounted for 3.8% of the loans originated by surveyed bankers in 2012, compared to 1.7% of the loans for 2010, according to the ABA’s 2013 Real Estate Lending Survey.
The loans were commonly used by borrowers who wanted to avoid paying for mortgage insurance but didn’t have enough money for a 20% down payment. Some of these loans were taken out to finance home improvements; others were part of a subprime product known as an 80/20 mortgage, in which 80% of the purchase price was covered by a first, adjustable-rate mortgage, and the remainder by a second mortgage with a higher interest rate.  
But the product declined when values dropped, and hasn’t picked back up due to fear, Vice President of Advisors Mortgage Group Sean Clark told MPA. Since banks are in line after the primary mortgagee, if a foreclosure proceeding begins, they know they won’t get the house, no matter what it’s worth.
“The reason piggybacks went away is values dropped so dramatically, so many of the banks that offered second mortgages out there lost everything they lent,” he said.
As the market stabilizes and continues on its current path, we will see a reemergence of banks offering second mortgages, just as we’ve seen a reemergence of jumbo loans, he said. 
“It’s a wonderful product if used properly,” said Bill Kidwell, president of IMMAAG, a mortgage advisory group. 
Kidwell says there are few toxic products, there are only people who sell products who don’t vet their clients to see if they are a good fit. 
In the case of piggy back mortgages, it could make perfect sense for someone who might be short on the down payment, but can rather pay off the second mortgage rather than going with skyrocketing mortgage insurance. 
But the days of 80/20 are over with tighter lending requirements across the board. While some banks will do a combined loan-to-value of 90% on the first and second mortgages, others will only go as high as an 85% combined loan-to-value, which means the borrower has to come up with at least a 10% down payment, and sometimes 15%.


  • by Jeb Koerber | 7/5/2013 9:23:55 AM

    What lenders are making the piggyback seconds?

  • by Wm Matz | 7/5/2013 11:19:45 AM

    Wonderful comment by Bill Kidwell [there are few toxic products]. I have phrased it similarly, "There are no bad mortgage programs, only bad fits between borrowers and mortgage programs." This is a point that is completely lost on "reformers", who focus on eliminating programs that were pushed abusively by Wall St. due to high profitability. We all recognize that consumers are now worse off after reform with fewer choices.

    The far better approach is to leave all the mortgage program options in place but enforce the fiduciary standard for brokers [most states] and extend it to mortgage officers. Then let fully-informed borrowers and the other financial advisors choose the options that best fit the borrowers' overall financial plans. Of course, along with this, we should have some real education and training requirements for originators so that never again will we have buger flippers or pizza deliverymen becoming mortgage advisors overnight.

    The return of the piggyback is a welcome development, especially now that FHA has gotten so costly. But the 80/10/10 will only work if it is consistent with borrower financial plans and not if it again becomes a means to jump into an unaffordable home.

  • by Jeff Skilling | 7/5/2013 1:12:43 PM

    > "There are no bad mortgage programs, only bad fits
    > between borrowers and mortgage programs."
    > This is a point that is completely lost on "reformers",
    > who focus on eliminating programs
    > that were pushed abusively by......

    And when the SHF again... **as it always does**, those borrowers who (then might) have 99.78% mortgages and lose their jobs and whose homes are foreclosed upon will be called what..... "bad fits" ???

    Not everyone should own a home and IMNSHO no one should own a home who cannot put away enough money to buy with minimum 10% equity.

    Until then - rent,


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