Warren seeks records on ‘zombie’ second mortgages after crisis

A key Senate leader is requesting records surrounding the cancellation of second mortgages following the Great Financial Crisis and asking whether the loans were sold to collections agencies in violation of a major legal settlement. 

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In a request sent to the independent monitor responsible for oversight of the 2012 National Mortgage Settlement, Sen. Elizabeth Warren, D-Mass., who serves as ranking member of the Banking, Housing and Urban Affairs Committee, asked for delivery of records associated with the second mortgages eliminated under terms of the agreement. 

In her letter, Warren suggested the banks involved may have agreed to the settlement and then turned around and sold those same loans, dubbed “zombie seconds,” to debt collectors. The request cited recent news headlines of attempted foreclosures on liens that many homeowners had forgotten existed.

“Servicers forgave over $15 billion of second mortgages. Servicers earned a set amount of ‘credit’ for these extinguishments towards their settlement obligations, and homeowners were supposed to be able to move forward with their lives without these second mortgages hanging over their heads,” the letter stated. 

Resulting from negotiations involving both federal regulators and 49 state attorneys general, the 2012 settlement was aimed at providing homeowners financial relief and penalizing the five largest bank servicers for mortgage misconduct that led to the Great Financial Crisis. Banks signing onto the 2012 agreement were Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial.

The five institutions either declined to comment or did not respond to inquiries from National Mortgage News regarding the senator’s request.  

Warren asked the independent monitor to produce records by Jan. 7, 2026. 

Zombie mortgages rise in public consciousness

Reports began emerging this decade of attempted second-mortgage collections that have caught homeowners by surprise. Originated alongside primary liens, the resurrected piggyback loans were often taken to help lower initial down payments or eliminate mortgage insurance requirements.

In her letter, Warren noted some borrowers had not been sent second-lien statements or related correspondence for years and received official documentation noting the loans were canceled, only to discover servicers were pursuing repayment or foreclosure. Reports coincided with the rapid surge in home values this decade. 

“Companies purchased millions of dollars of these second mortgages — and waited to collect until home prices rose,” Warren alleged in her letter. 

“Now, Americans who thought they were doing everything right learned, in many cases many years later, that debt collectors seeking to exploit the increase in their home valuations were going to foreclose on their homes.”

The past two years has been marked by several lawsuits, as well as legislation and enforcement action, targeting mortgage servicers over their attempts to collect or foreclose on homes based on past-due second liens. 

A new California borrower-protection law signed this summer makes unlawful specific types of servicer actions in connection with zombie mortgages. Lenders pushed back on the legislation this week, calling it “overreach” that would impede their operations.