Having a second mortgage puts home owners at a greater risk of foreclosure, but that doesn’t stop banks from giving them to borrowers.

A 2006 study by Standard & Poor’s, which analyzed 640,000 mortgages with second liens, found that these borrowers are 43 percent more likely to go into default than those who have similar loans but no second mortgage.

With this in mind, Business Week magazine recently asked First American LoanPerformance, mortgage data and risk firm, to analyze a sampling of loans banks had granted in the fourth quarter of last year.

LoanPerformance found that within months of getting an original mortgage, more than 50,000 of 169,000 borrowers had applied for more money or tapped a home equity line of credit, pushing their loan-to-value ratio to 95 percent or greater.

Big financial institutions are in the dark about borrowers who have come back to them for another loan, says Max Doubek, director of analytics at First American, because home equity lines of credit and first mortgages are often granted by separate departments that don’t communicate with each other. “They might as well be different companies.”

Source: Business Week, Mara Der Hovanesian (04/02/2007)