Pressure builds for US mortgage loan write-downs

WASHINGTON, March 8 (Reuters) - House Financial Services Committee Chairman Barney Frank is going after the four largest providers of U.S. mortgages to write down second mortgages to prevent "a deepening crisis" in the U.S. housing market.

Frank, in a letter to the chief executives of Citigroup (C.N), Wells Fargo (WFC.N), Bank of America (BAC.N) and JPMorgan Chase (JPM.N) dated March 4, said that taking losses on the second mortgages is necessary in order to allow modifications of the first mortgages to be made, which he said is critical to preventing further home foreclosures.

At issue are so-called second lien mortgages, which theoretically are worth nothing in cases when a home's value is less than the amount owed on the first loan.

But banks that hold the second liens want to be able to collect at least something from the homeowner. And if they do not mark the loan as a loss on their books, the first lien holders are unwilling to negotiate principal write-downs with the homeowners.

"To save homes on a large scale, we must move past temporary modifications in interest rates or terms and focus on permanent principal reductions that result in truly sustainable mortgages," Frank wrote in the letter.

"I urge you in the strongest possible terms to take immediate steps to write down these second mortgages and allow principal reduction modifications of the underlying first liens to take place," Frank, a Massachusetts Democrat, said.

First-mortgage investors complain that a modification subsidizes the investor in the second lien, since easing payments on the first enhances chances that the second will stay current.

Big banks that service and modify first mortgages also hold the lion's share of second-liens, creating what some investors have called a conflict of interest.

"The problem of second lien mortgages standing in the way of successful principal reduction modifications has reached a critical stage and requires immediate attention from your institutions," Frank wrote.

The Obama administration, meanwhile, has been in talks with the mortgage servicers about getting more of them signed up for the second-lien component of the Home Affordable Modification Program (HAMP).

Bank of America signed on to the program in January after its chief executive, Brian Moynihan, met with Treasury Secretary Timothy Geithner. None of the other major servicers has signed up.

The pressure comes as criticism of the administration's efforts to help homeowners is mounting.

Last month, lawmakers from both parties sharply criticized the $75 billion foreclosure prevention effort from the Obama administration that has resulted in just over 100,000 permanent loan modifications for struggling homeowners.

Rep. Dennis Kucinich, an Ohio Democrat and chair of the House Oversight and Government Reform Domestic Policy Subcommittee, told a top Treasury official that he was giving her a "wake-up call" to do more to help homeowners.

Republicans on the panel called HAMP a "failure" by every empirical measure in an 18-page report on the housing efforts. (Editing by Leslie Adler)