Silent Second Mortgage

DEFINITION of 'Silent Second Mortgage'

A secondary mortgage placed on an asset that is not disclosed to the lender of the original loan. Silent second mortgages are used when a purchaser can't afford the down payment required by the initial mortgage. The mortgage is silent because the original lender is unaware of its presence. In many circumstances, a silent second mortgage is a type of fraud.

BREAKING DOWN 'Silent Second Mortgage'

When the original mortgage lender provides funds, the arrangement requires the borrower to provide a down payment. The fraud occurs when a second mortgage is used to fulfill the obligation of the down payment.

For example, let's say that you wish to purchase a house for $250,000. You have secured a mortgage for $200,000, which requires a down payment of $50,000. However, you can't acquire the necessary funds for the down payment, so you decide to take a silent second mortgage of $40,000. The original lender believes your down payment to be $50,000 when it is actually only $10,000 ($50,000 - $40,000). This increases the original lender's risk because a 4% decrease in the home's value ($10,000 / $250,000) will wipe out your equity, but the original lender believes you are covered up to a 20% decline in prices ($50,000 / $250,000)

RELATED TERMS
  1. Mortgage Broker

    An intermediary who brings mortgage borrowers and mortgage lenders ...
  2. Second Mortgage

    A type of subordinate mortgage made while an original mortgage ...
  3. No-Cost Mortgage

    A mortgage refinancing situation in which the lender pays the ...
  4. Portfolio Lender

    A company that not only originates mortgage loans, but also holds ...
  5. Best Efforts Mortgage Lock

    When the sale of a mortgage in the secondary mortgage market ...
  6. Mortgage Pipeline

    Mortgage loans that have been locked in with a mortgage originator ...
Related Articles
  1. Home & Auto

    5 Reasons To Save For A Big Mortgage Down Payment

    You may be anxious to buy a home, but taking time to save a large down payment has numerous advantages.
  2. Insurance

    Behind the Scenes of Your Mortgage

    Four major players slice and dice your mortgage in the secondary market.
  3. Credit & Loans

    Understanding the Mortgage Payment Structure

    We explain the calculation and payment process as well as the amortization schedule of home loans.
  4. Credit & Loans

    The Best Mortgage Deal (May Not Be What You Think)

    Don't judge a mortgage solely by payment amount. Here's what insiders know about choosing the most advantageous mortgage offer.
  5. Home & Auto

    Shopping for a mortgage in 2016? Use this tool first.

    As home-buying technology has progressed, the process of finding the best mortgages rates for 2016 can all be done online.
  6. Home & Auto

    Find a Reverse Mortgage Lender You Can Trust

    Reverse mortgages are a notorious lending market. Follow these steps and the chances are good you’ll find a trustworthy, competent lender.
  7. Options & Futures

    Score A Cheap Mortgage

    Hidden costs can create what looks like a good deal. Find out how to find the best mortgage possible.
  8. Home & Auto

    Homebuyers' Walkthrough: Obtaining A Mortgage

    A mortgage is a pledge of real property as security for the payment of money, and today's homebuyers have a variety of options in terms of lenders and loan types. Obtaining a mortgage can be ...
  9. Credit & Loans

    Mortgage Basics: Costs

    By Lisa SmithPeople generally think about a mortgage in terms of the monthly payment. While that payment represents the amount of money needed each month to cover the debt on the property, the ...
  10. Retirement

    Best Mortgage Companies Friendly to Retirees

    If you’re no longer in the workforce and need a loan to buy a home, which companies are the most welcoming? Plus, good news about qualifying for a loan.
RELATED FAQS
  1. What’s the difference between a mortgage lender and a mortgage servicer?

    Buying a home is an exciting and confusing process. Once the loan is secured, it's important to know who gets the payment: ... Read Answer >>
  2. If my mortgage lender goes bankrupt, do I still have to pay my mortgage?

    Yes, if your mortgage lender goes bankrupt you do still need to pay your mortgage obligation. Sorry to disappoint, but there ... Read Answer >>
  3. How does the loan-to-value ratio affect my mortgage payments?

    Understand what the loan to value ratio is, how the ratio is calculated and learn how it has an impact on your mortgage payments ... Read Answer >>
  4. How can I avoid paying private mortgage insurance (PMI)?

    Private mortgage insurance (PMI) is an insurance policy that protects lenders from the risk of default and foreclosure, and ... Read Answer >>
  5. What are the liabilities of a silent partner?

    Understand the position of a silent partner in a business, specifically how the liability of a silent partner is limited ... Read Answer >>
  6. Why would a homebuyer need to take out PMI (private mortgage insurance)?

    Learn why some home buyers are required to take out private mortgage insurance (PMI), and how it affects the total monthly ... Read Answer >>
Hot Definitions
  1. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  2. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  3. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  4. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
  5. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
  6. Sharing Economy

    An economic model in which individuals are able to borrow or rent assets owned by someone else.
Trading Center