UPDATE 2-US Treasury aims to ease second-mortgage burden

(Recasts lead, adds comments by administration officials)

WASHINGTON, April 28 (Reuters) - The U.S. Treasury Department on Tuesday announced new measures to help embattled homeowners get lower payments on second mortgages that can be a big hurdle for those trying to avoid foreclosure.

Administration officials confirmed that Treasury will tap a $50 billion housing rescue fund to help pay off mortgage investors and so cut monthly payments for potentially millions of borrowers.

The so-called "Second Lien Program" will work in tandem with first-lien modifications that currently are offered under a "Home Affordable Modification Program," so that a homeowner in trouble can get both loans dealt with at the same time.

"Up to 50 percent of at-risk mortgages have second liens, and many properties in foreclosure have more than one lien," Treasury said in a statement, adding that the modification of a first lien will lead the automatic reduction of the second.

"When a Home Affordable Modification is initiated on a first lien, servicers participating in the Second Lien Program will automatically reduce payments on the associated second lien according to a pre-set protocol," Treasury said.

A senior administration official, speaking to Reuters before the program was announced, described it as "a shared effort with lenders, investors, borrowers and the government to ease or extinguish second-lien mortgage payments," a senior administration official told Reuters.

Treasury estimated that up to 1-1/2 million homeowners can benefit from the program to deal with second liens. Costs would be shared with lenders to lower the interest rate on a second mortgage that is amortized to 1 percent while the rate on interest-only second mortgages would be cut to 2 percent.

During the height of the housing boom, some borrowers were able to buy a home with no downpayment by adding a second lien, and many of those loans are now failing as the economy and housing market struggle.

Second liens typically carry a higher interest rate than primary mortgages but those second liens will have a lower rate under the modification plan, the officials said.

"The second lien holder, as is appropriate in the junior position, is taking more of a reduction in interest rate," one official said. "The interest rate will go at least as low as the interest rate on the first and it will (fall) much further to get there."

Tuesday's announcement built on President Barack Obama's housing rescue plan announced in February that aims to reduce the cost of homeownership for up to 9 million borrowers straining to make their monthly payments.

RESCUE GETS A REVAMP

Officials also announced new incentives for the Hope for Homeowners program conceived last summer to refinance hundreds of thousands of struggling borrowers.

In fact, the program has only aided a handful of homeowners and the Department of Housing and Urban Development will offer mortgage servicers thousands of dollars for each home loan that they successfully modify under that troubled program, the officials said.

The officials said they will continue to remove other bureaucratic encumbrances and expand incentives where needed to steer more homeowners away from default.

Some analysts have faulted officials and lawmakers for leaving Hope for Homeowners hamstrung by the question of second liens as those investors have had a near veto power on modifications.

"It has taken policymakers a long time to realize that second liens are a showstopper," said Dwight Jaffe, a professor of housing finance at Berkeley University in California.

(Reporting by Patrick Rucker and David Lawder, writing by Glenn Somerville, Editing by Chizu Nomiyama)