April 28_(Reuters) - The Obama administration on Tuesday unveiled new incentives to modify and extinguish second-lien mortgages to reduce monthly payments for struggling home owners.

Under the so-called "Second Lien Program," payments on second mortgages will automatically be reduced when the first-lien mortgage on the property is modified, clearing a big hurdle for those trying to avoid foreclosure.

Following are some questions and answers about the program.

Q: What are second-lien mortgages and what's the problem with them?

A: During the height of the housing boom, many borrowers were able to buy a home with no down payment by adding a second lien -- often at higher, variable interest rates -- that was subordinated to the first mortgage. Such financing often allowed borrowers to avoid paying for mortgage insurance offered by specialty companies. As housing values fell, these second mortgages have become a barrier to refinancing and led to foreclosures even when the first mortgage was modified to reduce costs. To make the overall housing payment affordable, both loans often need to be modified at the same time.

Q: What's the solution the Obama administration has proposed?

A: The Second Lien Program will give lenders new cash incentives to encourage them to reduce the interest rate on the second mortgage to 1 percent annually for amortizing loans in which the principal is paid down each month, and 2 percent annually for interest-only second liens. Lenders would forbear principal payments in the same proportion as any principal forbearance on the first mortgage. After five years, the interest rate on the second lien would step up to the rate on the modified first mortgage at that time.

Q: What do lenders and investors get for cutting their rates?

A: The Treasury will pay loan servicers $500 up front for a successful modification of a second lien, then "success payments" of $250 a year for three years as long as the modified first loan remains current, for a total of $1,250. Borrowers also can get $250 a year in payments over five years if they stay current on the modified loans. This amount will be applied toward paying down their first mortgage. Investors will receive half the difference between the modified first-lien rate as modified and 1 or 2 percent, depending on the loan.