What happens to a second mortgage in a modification?

Voltron says: This is a huge question for the $800 billion on second lien mortgages (mostly home equity loans) of which Wells Fargo has about $85 billion.

excerpt:

Normally second lien mortgages (which are simply second mortgages taken out on a property) rank subordinate to the first loan. In principle, that means if the property is sold or the borrower defaults, the first lien lender is first in line to get the resulting money, followed by the second lien lender.

But it seems an interesting thing happens when mortgage modifications come into play.

Because the borrower is paying the Hamp-modified first lien amount, and the full second lien amount, the second lien effectively becomes senior to the first. In fact, second lien lenders might even be thought of as benefiting from the first lien mortgage since they have a better chance of getting more of their money back from the borrower.

http://ftalphaville.ft.com/blog/2010/01/08/122331/a-second-lien-helping-of-hamp/