Posts Tagged ‘loan modifications’
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.
The sorry state of servicers
From my colleague Kai Wright, a fellow Nation Institute Investigative Fund journalist, a disturbing look in The Nation at how the servicing companies in charge of shuttling mortgage payments to securities investors are largely unprepared for their new job on the frontlines of the Obama administration’s homeowner bailout.
Geithner: No one knows if mods will work
From this morning’s Congressional Oversight Panel hearing with Timothy Geithner: The Treasury secretary admits, more forcefully than I’ve yet heard him, that the administration has no idea of whether its mortgage loan modification program will actually work:
It’s going to take a little time to judge what’s actually happening…. We’ll have to wait to see the pattern of modifications and the extent to which they allow economically viable homeowners stay in their homes.
It’s a very complicated program as you know, and a complicated set of incentives we’re trying to o change. What we have is both a problem and opportunity…as we see problems in design or challenges in implementation we’ll try to fix those.
That’s a fair and honest assessment from Geithner — quite a contrast to his dissembling on any direct questioning (primarily from Warren and commission member/AFL-CIO counsel Damon Silvers) about public risk, accountability, and expected outcomes on the bank capital infusions.
More on the booming loan mod industry
The Wall Street Journal does its take on the loan mod industry’s move to profit from the Obama homeowner bailout, as first seen in Salon. California’s list of authorized loan modification companies is now 300 deep.
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?
Loan modifications, nerd edition
If my article on loan modifications for The Big Money left you wanting more, Business Week has done a detailed, revealing and readable (considering the subject matter) look at what it will really take to modify mortgages to make them affordable. Between preemptive lawsuits from major investors and accounting standards designed to prevent monkey business in the management of mortgage pools, the technical obstacles to even the not-especially-helpful kinds of loan mods we’ve seen so far remain depressingly formidable.
On the bright side, those challenges may ultimately (this is my opinion now, not Business Week’s) doom the trend of tinkering with bad mortgages to nudge them to perform and leave across-the-board writedowns, through a formidable exercise of government power, as a necessary action if things get much worse. And given all current foreclosure and related economic trends it’s hard to see how they won’t.
Growing rancor over homeowner bailout
Over at Politico, Andie Coller has a smart piece looking at the brewing resentments around the Obama homeowner bailout and the perhaps inevitable divisions between those getting financial help from the government and those who cannot. I’m quoted in the kicker.
Download it, hit print, and read it
…So Obama press secretary Robert Gibbs advised CNBC ranter Rick Santelli, who on the air last week attempted to stir a faux-populist rebellion by charging that the administration’s plan to help homeowners was a giveaway to reckless, imprudent and excessively aspirational mortgage borrowers. Okay, I don’t expect Santelli to ponder policy before he does an impersonation of Peter Finch in Network. But I’ve been struck by how inadequately people I talk to, or hear in the media, still understand an essential fact of the plan. (By “plan” I mean the part subsidizing loan modifications saving people from foreclosure, since even Santelli wouldn’t be fool enough to criticize the other part, which gives borrowers who took out low-risk mortgages using full documentation but had the misfortune to live in areas with sharp price drops the opportunity to refinance at lower rates.)
I’m going to resort to cheap boldface: The homeowners who get loan modifications are not getting a financial giveaway. Over the life of their loans, they will owe MORE than they did before the bailout. The government program to lower their monthly payments spends some bucks to keep them afloat over the next few years until the economy and home prices stabilize, making other options (like selling the home) possible. But because lenders will be adding all the unpaid principal and interest to the end of the loan the homeowner still pays the bill in the end. For most people, their loan balances will increase. Download, hit print, and read the Treasury Department’s own case studies for examples.
The homeowner bailout
New from me, in The Big Money: Why Obama’s plan to ease troubled mortgages will be harder than it sounds. Here’s a tease:
You might think that straightening out a $400,000 mortgage would be massively simpler than righting sinking financial institutions nominally worth billions. Yet rescuing homeowners could turn out to be among the toughest bailout challenges of all.
How the homes we live in turned into the monsters that ate our economy and the United States became a nation obsessed with real estate.
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