Posts Tagged ‘New York Times’

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: , , ,
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When will they learn?

I just sent the following correction to The New York Times on its followup story this morning about the murder-suicide in LA apparently linked to excessive mortgage debt. This is not the first time I’ve seen the paper of record mischaracterize mortgage transactions in ways that are central to the story, and I always make an effort to contact the writer or editors to inform them of the errors. I don’t think these mistakes are deliberate or malicious, just ignorant (indeed, I made them myself early on in my book research and had the luxury of correcting them). But the problem is that such flimsy reporting fuels distorted responses at all levels, from the actions of policymakers to the marketing efforts of loan modification companies. I sometimes worry that when my book comes out readers will wonder why many of the stories I tell aren’t as outrageous as those they’ve read about in the papers. Modesty about my skills as a journalist aside, it’s because the messy reality of many of these transactions defies easy conclusions.

–

To the New York Times: Reading the sad story this morning by Rebecca Cathcart about the murder-suicide of a family in Los Angeles burdened by mortgage debt, the amount of morgtages the Lupoes’ were reported to have obtained — more than $850,000 — struck me as improbable, even in Los Angeles’ excessively inflated real estate bubble. (I’m a journalist who has been covering the mortgage crisis and recently traveled to Southern California to report on distressed borrowers seeking loan modifications.) A look at public records indicates that the reporter mischaracterized the amount of money owed by the Lupoes. The Lupoes took out a mortgage of $231,920 when they purchased the home. They then refinanced that loan in 2005 for 383,000, a transaction that presumably allowed them to take cash back, as many Californians did as property values rose. That refinancing “retired” the first loan, effectively replacing it. Then they took out a “second mortgage” — one whose debt was added to the prior mortgage — in 2006 for $248,887.

Their total mortgage load amounted to $631,887, not $850,000+. No doubt this amount was itself a strain on the family. But I’d advise the Times to accurately report the financial details, especially when they play such a prominent role in a story. While it’s technically correct that the Lupoes had taken out that much money over the period of their ownership of the home, the figure as reported is grossly misleading. Tens of millions of homeowners refinanced repeatedly during the boom, taking cash out of their home equity — this indeed was a central force in inflating prices in the bubble.

Thank you for your attention,

Alyssa Katz

Adjunct Professor of Journalism, New York University
Author, “Our Lot: How Real Estate Came to Own Us” (Bloomsbury, June 2009)

Thursday, January 29th, 2009 | Tags: ,
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Thoughts on Lewis & Einhorn

There’s much to savor, not surprisingly, in Michael Lewis and David Einhorn’s assessment in the Times today about the causes of Wall Street’s collapse and some possible treatments for the acute corruption and incompetence that reigns in what passes for the U.S. financial regulatory system.

The upshot, they say: give a heave-ho to those ratings agencies already — the ones that gave top grades to securities that in no way deserved them — and make the Securities and Exchange Commission once again a watchdog agency working on behalf of investors.

Yes, and yes; yes to Lewis and Einhorn’s other recos, too. But. What they’ve offered here is a promising recipe for avoiding investor apocalypse in the future. Okay, and a strong, reasoned argument for helping overstretched homeowners, too. And yet none of this gets to the heart of why the real estate bubble was so disgustingly destructive to the nation, or what über-regulators are going to need to focus on as agents of the public interest — which, I’m sorry, is not always the same thing as investors’ interests.

What Lewis and Einhorn are essentially talking about building a better, sharper, stronger debt-trading machine. The most poisonous flowers of the old growth, collateralized debt obligations and credit default swaps, come in for properly savage thrashings here. So why no questioning of mortgage-backed securities themselves? Is it really enough to improve their reliability of their ratings and oversight? For investors, absolutely. Enough about them for a moment. For many homeowners, the strange invention that Lewis himself so delightfully chronicled in Liar’s Poker — the transmogrification of the places where we live into tradeable bets and blips — wreaked miseries long before investors in those securities had to suffer. (Full Treasury/HUD report here.) Indeed, if regulators had succeeded in keeping the zaniest excesses of derivatives trading in check, the kinds of depradations Larry Summers and Andrew Cuomo railed against in 2000 would undoubtedly still be going on. Engineering a more robust business in indebting consumers is not the way out of this nightmare.

Sunday, January 4th, 2009 | Tags: , , , , , , ,
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The great crusade

4-02-editorial1

I wrote this in the spring of 2002. Add my voice to that of the econobloggers out there (like Krugman and Ritholtz) who say that yesterday’s big Times story on the Bush administration’s role in stoking the mortgage crisis made too much of too little. But as this editorial I wrote for City Limits magazine notes, the Bush crew did add some unique spins of its own to agenda already established by Clinton — namely, it pushed the quest for increased homeownership to even more tenuous extremes, like with that new program that encouraged families that paid the rent with Section 8 vouchers to use the government aid to buy a home instead. Just loony.

Monday, December 22nd, 2008 | Tags: , , ,
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