Home equity loans gone bad remain a stumbling block to the housing recovery.

If I had to name one sticking point, it's the second mortgage, said Ethan W. Gregory, an associate with First Coast Realty Associates in Jacksonville, Fla., who specializes in short sales.

Last April, the U.S. Treasury Department offered home-equity lenders a subsidy to reduce interest rates on seconds to as low as 1 percent and lien holders would get as much as 12 cents on the dollar to retire debt. But that program hasn't gotten off the ground.

None of the lenders holding a combined $1.05 trillion in home-equity debt has signed a contract to participate in the second-mortgage modification plan. But the largest banks remain committed to joining, said Meg Reilly, a Treasury Department spokesperson.

Because there has not been a systematic method of notification to second lien holders when a first lien on the same property is modified, ramp up has taken some time, Reilly said in an e-mail.

Source: Bloomberg, Jody Shenn (10/19/2010)