Posts Tagged ‘California’

Inside a loan mod factory

Kudos to Peter S. Goodman of the Times for listening in behind the scenes of a loan modification company (unnamed) in pursuit of understanding why so few mortgages are being successfully reworked to make them more affordable for borrowers.

Let’s charitably assume that Goodman tried and didn’t succeed in getting a HUD-sponsored nonprofit to agree to the arrangement. As Goodman notes, the company he visited charges $3,000 for a loan modification. So what the heck is it doing putting a college student intern – “intern” almost always a synonym for “unpaid” – on the front lines of the transaction?

Somewhere on earth, there must be a more difficult task than this: persuading American mortgage companies to lower payments for homeowners who can no longer afford their loans. But as Karina Montenegro struggles to accomplish this feat for a troubled borrower, she strains to imagine a more futile pursuit.

As the article notes, the customer will get a refund if the loan is not successfully modified – that’s the law in California. What it doesn’t explain is that the company can hold onto a deposit that can be one-third to one-half of the total amount. What’s more, pretty much any change to a loan terms can count as a successful modification if the borrower can be persuaded to accept it – even if it simply forestalls unpayable bills to a later date, which is often the case. Even with the new federal incentives, it’s extremely rare to get a principal reduction – and that means mortgage who overpaid and overborrowed are recommitting to pay too much. Which is all to say that having loan servicers lose the paperwork isn’t always the worst outcome.

More here, in my March Salon story on California’s loan modification companies.

Monday, June 29th, 2009 | Tags: , , ,
Posted in A Lot More | 1 Comment »

How many lied?

One vital question that I had to grapple with in my book, and that is central to decision-making right now by Treasury, banks, and investors as they try to figure out what mortgage backed securities are actually worth, is ridiculously basic, and the answer just as elusive: How many borrowers lied on their mortgage applications? Not just about their incomes or debts, but even whether or not they actually planned to live in the homes?

Some analysts have provided important clues, though so far only on loans that end up failing. Frank McKenna at BasePoint Analytics, for instance, ran tests on samples of mortgages that went into default very quickly and found evidence of “egregious misrepresentations” on anywhere between 30 and 70 percent of them, including widespread false claims about owner occupancy. Now a renters’ group in California, Tenants Together, provides another nugget of insight [PDF]: among the tenants in homes going into foreclosure who’ve called the organization’s help hotline, between half and two-thirds lived in houses whose landlords had claimed on their mortgage applications that they’d be living in the homes, presumably to obtain more favorable mortgage terms. Kudos to Tenants together for taking the trouble to examine the property records.

One huge challenge with Treasury’s “legacy asset” purchase plan is that it’s a moving target – as unemployment rises and property values fall, the likelihood that borrowers will go into default, and therefore diminish the real value of the securities that include their mortgages, grows steadily. But there is much more we don’t know about the fundamentals of the mortgages in the pools — and never find out until they’re already heading into foreclosure. That should rightly scare investors, and us as taxpayers financing the toxic asset plan.

Saturday, April 11th, 2009 | Tags: , , ,
Posted in A Lot More | No Comments »

More (from me) on the homeowner bailout

I just wrote a story for Salon about California’s booming loan modification industry — a cadre of mortgage brokers, many of whom sold toxic mortgages during the boom, now reinventing themselves as mortgage bailout heroes, helping homeowners avoid foreclosure. The new Obama administration loan modification program helps guarantee them a steady stream of business, since there’s nothing in Treasury’s new “Homeowner Affordability and Sustainability Plan” to preclude borrowers from turning to one of these companies to help process the deal.

And who the heck came up with “Homeowner Affordability and Sustainability Plan”? It’s not even grammatically correct. Is Treasury promising to make homeowners affordable and sustainable? If I write a check for $10,000 will a homeowner (current? former?) show up on my doorstep?

Tuesday, March 3rd, 2009 | Tags: , , ,
Posted in Articles | No Comments »