Second Mortgage Modification Plan Offers One Percent Rates

And so, the government is now offering lenders incentives to cut rates on second mortgages, with a taxpayer-funded plan which could cut second mortgage rates to as low as 1% for the next five years for
qualifying borrowers.

This seems like an add-on to the previously announced Making Home Affordable program, and was unveiled in a press release on Wednesday. Here's how it's described:

The Second Lien Program announced today will work in tandem with first lien modifications offered under the Home Affordable Modification Program to deliver a comprehensive affordability solution for struggling borrowers. Second mortgages can create significant challenges in helping borrowers avoid foreclosure, even when a first lien is modified. Up to 50 percent of at-risk mortgages have second liens, and many properties in foreclosure have more than one lien. Under the Second Lien Program, 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. Alternatively, servicers will have the option to extinguish the second lien in return for a lump sum payment under a pre-set formula determined by Treasury, allowing servicers to target principal extinguishment to the borrowers where extinguishment is most appropriate.

The Treasury gave case examples (.PDF). One example:

Family A has an unpaid balance of almost $44,000 on their second mortgage.

After those five years, Family A’s mortgage payment will rise again but to a more moderate level.

It's unclear where the "moderate level" assurance comes from.

Many have said that before the economy recovers from recession, the housing market must recover. This is a further step in that direction, but will it be enough?