Soft Second Mortgages

Many of these new home-owners are helped by the City of Worcester to buy their homes with second mortgage from the City of Worcester. I believe that these are CDBG monies from HUD called HOME funds. It is a great program since it puts alot of people "over the top" into home ownership, who may be right on the fence from being able to qualify or not.

Basically the new home-owner, in addition to their primary mortgage, gets another loan from the City of Worcester (a 2nd mortgage). They do not have to pay it back, thus the term "soft" mortgage. Now that is how I understand it, believe me I could be completely wrong, here is a link that does a better job.

Here is a problem that I see. As the real estate market stabilizes, or even drops, the equity in some of the properties may disappear, especially if one does not own the underlying land. If these properties were to go into foreclosure and be bought by someone who is not low to mod income during the "affordability period", the "soft" second has to be paid back by the participating jurisdiction (PJ). Here is a better link.

Can anyone confirm, clarify any of this?