Banks Asked to Ramp Up Loan Help

U.S. Wants 500,000 Mortgage Modifications by Nov. 1; Firms Ask for Clarity
July 29, 2009 - by Renae Merle - Washington Post Staff Writer

Senior administration officials pressed executives from the nation's largest banks Tuesday to speed help to distressed borrowers after a frustrating start to the government's foreclosure-prevention effort and set a goal of more than doubling the number of homeowners receiving aid by November.

After a series of meetings with top banking executives, Treasury Department officials said they want lenders to modify 500,0000 mortgages by Nov. 1. Since the program, known as Making Home Affordable, began in March, it has recorded about 200,000 loan modifications. Read more ...

Related articles
Treasury Says Servicers Commit To Increased Loan Mod, July 28, 2009, Forbes
Mortgage Servicers Pledge to Accelerate Modifications, July 28, 2009, Bloomberg
Servicers Attend Meeting of the Minds in Washington, July 28, 2009, Housingwire
Administration pushes servicers to modify more mortgages, July 29, 2008, Seattle Post Intelligencer

Unintended consequence of mortgage modifications: falling credit scores

July 26, 2009 - by Alexis Leondis - Bloomberg News

NEW YORK — Victor Stern thought his money troubles were over when he got approval to modify his home loan.

Then his credit score dropped 121 points.

Stern, a business development director at an information technology company in Charlotte, N.C., said he was shocked to see his credit score drop to 619 from 740 after entering the trial period for a loan adjustment under President Barack Obama's Home Affordable Modification Program. A salary reduction caused him to seek a change in the terms of his loan before he missed any payments.

Mortgage lenders, including banks such as Citigroup Inc., JPMorgan Chase & Co. and Bank of America Corp., report loan modifications to credit bureaus. The adjustments can lower credit scores because of the way the FICO formula, the most widely used by U.S. lenders, works. Read more ...

Foreclosures Are Often In Lenders' Best Interest

July 28, 2009, by Renae Merle, Washington Post Staff Writer

Government initiatives to stem the country's mounting foreclosures are hampered because banks and other lenders in many cases have more financial incentive to let borrowers lose their homes than to work out settlements, some economists have concluded.

Policymakers often say it's a good deal for lenders to cut borrowers a break on mortgage payments to keep them in their homes. But, according to researchers and industry experts, foreclosing can be more profitable. Read more ...

U.S. Effort to Modify Mortgages Falters

July 28, 2009 - By Ruth Simon - The Wall Street Journal

An Obama administration effort to reduce home foreclosures by lowering the mortgage payments of struggling borrowers before they fall behind is failing to help as many people as expected.

Among the problems: Some homeowners are being told they must be behind on their payments to receive help, which runs counter to the aim of the program. In other cases, delays are so long that borrowers who are current on their payments when they ask for a loan modification are delinquent by the time they receive one. There is also confusion about who qualifies.

Administration officials have summoned executives of 25 mortgage-servicing companies to Washington on Tuesday to discuss efforts to help borrowers, both delinquent and at risk. Among the items on the table: what steps the companies should take to increase and speed up modifications. Read more ...

New GAO report: Home Affordable program needs to be more transparent, accountable

The U.S Government Accountability Office released a report yesterday calling on the Treasury to make the administration’s Home Affordable Modification Program (HAMP) more transparent and accountable. The 68-page report is the sixth in a series of reports issued by the GAO analyzing the effectiveness of the Troubled Asset Relief Program (TARP). The report includes the following recommendations:

1. consider methods for monitoring compliance with and the effectiveness of its counseling requirement;
2. reevaluate the basis and design for Home Price Decline Protection (HPDP) program;
3. regularly update assumptions and projections underlying the estimated number of borrowers likely to be helped by HAMP;
4. staff vacant positions within the Homeownership Preservation Office (HPO), and evaluate its staffing levels and competencies;
5. finalize a comprehensive system of internal control over HAMP; and
6. systematically assess servicer’s capacity to meet HAMP’s requirements during program admission.

The full report is available here.

Obama turns up heat on mortgage servicers

Administration will tell financial institutions they must do more to help borrowers. 'We think we can do even more,' official says.

July 16, 2009 - by Tami Luhby CNNMoney.com

NEW YORK -- As complaints mount about President Obama's foreclosure prevention program, the administration is ratcheting up the pressure on mortgage servicers.
Financial executives will meet with Treasury Department and administration housing officials on July 28 to discuss how the loan modification and refinancing plan has been implemented. The administration plans to grill servicers that have done few modifications or have had many complaints.

Officials also want financial institutions to hire more people and train them better, expand their call centers, and send more mailings to eligible borrowers, according to a letter sent to servicers last week. The government also said servicers need to establish a way for borrowers to contest their treatment or denial. more ...

Senate Banking Committee Focuses On HAMP

July 17, 2009 - by John Clapp - Mortgage Orb

As a precursor to the July 28 meeting scheduled between Treasury officials and servicers participating in the government's Home Affordable Modification Program (HAMP), the Senate Banking Committee held a hearing Thursday morning in an effort to help lawmakers gauge HAMP’s progress - or lack thereof - since its introduction in February.

The hearing - which included testimonies from the Treasury, as well as Wells Fargo and Bank of America servicing execs - highlighted the program’s administrative obstacles and shortcomings. In recent weeks, lawmakers have increasingly expressed concern that HAMP, originally projected to save up to 4 million homes, is both underperforming and being implemented too slowly.

“We've got to get this out sooner, quicker, faster, more expeditiously,” said Sen. Mark Warner, D-Va. more ...

Bankers, Lawmakers Assail Pace of Obama’s Mortgage Programs

July 16, 2009 - By Dawn Kopecki and Jody Shenn - Bloomberg

The Obama administration may be “just going through the motions” in dealing with the deficiencies of U.S. anti-foreclosure programs, leaving a record number of struggling homeowners with few options for relief, Senate Banking Committee Chairman Christopher Dodd said.

“I’ve had a lot of frustrations in trying to come up with plans that work,” Dodd, a Connecticut Democrat, said during a break in a hearing on the programs today in Washington. “I’m concerned that we’re just going through the motions. I don’t get the sense of urgency.”
A Bank of America Corp. executive told Dodd’s committee that the administration stokes “confusion and delay” among lenders when it announces anti-foreclosure plans before completing the program details, while Senator Richard Shelby of Alabama complained that the programs have fallen short of goals.

“Existing modification programs have not been very effective,” Shelby, the ranking Republican on the Senate Banking Committee, said. “Sustainable policies must be based on economic realities and facts, not wishful thinking.” more ...

Mortgage-Bond Holders Seek Borrower Debt Reductions

July 16, 2009 - By Jody Shenn - Bloomberg

Mortgage-bond investors want more homeowners to be given aid that reduces the size of their debt below the value of their property, a Fortress Investment Group executive told Congress.

Banks controlling loan-modification decisions as servicers have blocked such relief because other types of changes to mortgage terms don’t require the banks to suffer losses on their holdings of home-equity loans, Curtis Glovier, a managing director at the New York-based asset manager said in prepared testimony to the Senate Banking Committee in Washington today.

“Investors are willing to do our part by making a significant sacrifice in reducing mortgage principal,” he said, speaking on behalf of the Mortgage Investors Coalition, a group formed in April that represents 11 firms with $200 billion of assets under management. more ...

Administration Weighs More Foreclosure Aid

Homes Could Be Rented Under Proposal

July 17, 2009 - By Renae Merle - Washington Post Staff Writer

A top Treasury Department official told a Senate panel yesterday that the government is considering a proposal to allow homeowners to stay in their home as renters after a foreclosure. If enacted, the plan would attempt to address the glut of vacant properties in neighborhoods across the country, helping drag down home values. It would be yet another acknowledgment by the Obama administration that some borrowers cannot be saved from foreclosure despite government and industry efforts. more ...

From Treasury to Banks, an Ultimatum on Mortgage Relief

A recent article by Joe Nocera of the New York Times attempts why so many loan servicers are having difficulty getting up to speed with the Obama administration's Making Home Affordable program:

“Servicers are just not equipped to do this,” said William Kelvie, the chief executive of Overture Technologies, a company that sells underwriting software. If you want to understand why loan modifications have been so slow in coming, that’s a pretty good place to start.

For most of its history, the mortgage servicing industry — which is dominated by big banks like Bank of America, Wells Fargo, and JPMorgan Chase — did relatively simple tasks: it collected mortgage payments, paid taxes on the properties and so on. Yes, it dealt with borrowers who were in arrears — which usually amounted to no more than 2 or 3 percent of their portfolio at any one time — but mainly it either prodded people to get current on their payments or initiated foreclosure proceedings.

Modifying loans — thousands upon thousands of loans, amounting to as much as 25 percent of a servicer’s portfolio — is a much more complex task. For some servicers, the sheer numbers can “overwhelm the system,” said Larry B. Litton Jr., the chief executive of Litton Loan Servicing, which is owned by Goldman Sachs and which has long specialized in loan modifications. That is at least part of the reason why borrowers are having so much trouble getting their servicers to take their calls: many servicers can’t cope with the volume.

More important, loan modification requires a lot of work. They can’t be done in a blanket, one-size-fits-all fashion. Rather, loan modification is a one-on-one process that requires servicers to do something that should have been done in the first place: actually underwrite the loan.

The full article is available here

White House Prods Banks

Letter Tells Chiefs To Start Backing Mortgage Relief

July 10, 2009, by Renae Merle, Washington Post Staff Writer

The Obama administration yesterday scolded the heads of the country's largest banks, urging them to move faster and do more to help millions of distressed homeowners under a federal foreclosure prevention program.

In a two-page letter, Treasury Secretary Timothy F. Geithner and Shaun Donovan, secretary of the Department of Housing and Urban Development, acknowledge that the government program, known as Making Home Affordable, has yet to gain traction since being launched in March.

"We believe there is a general need for servicers to devote substantially more resources to this program for it to fully succeed and achieve the objectives we all share," the letter said. more ...

CNNMoney.com interviews executive director of Hope Now

CNNMoney.com interviews Faith Schwartz, Executive Director of Hope Now, a coalition of servicers, community groups and mortgage investors working to stem foreclosures.

Freddie Mac turns to YouTube

New Video Shows Which Documents Can Help Reduce Repeat Calls To Servicers

McLean, VA – Freddie Mac today posted a new video on YouTube.com that shows late-paying borrowers how gathering a few financial documents before calling a mortgage servicer can cut the time needed to determine their eligibility and process their application for a loan modification under President Obama's Making Home Affordable program or Freddie Mac's other workout initiatives.

Available in English and Spanish versions, the new Freddie Mac video, “Stop Foreclosure: Documents Your Lender Needs to Help You,” can be seen at Freddie Mac’s channel on YouTube at http://www.youtube.com/FreddieMacWeb.



The two-minute video shows step-by-step which documents borrowers should have on hand when they call their servicer to discuss loan modifications. These documents can cut the time a servicer will need to understand the borrower's situation, determine his or her eligibility for a workout, and process the application.

"America's servicers are handling an extraordinary volume of calls from distressed borrowers seeking an Home Affordable Modification under the President's program," said Ingrid Beckles, senior vice president of default asset management at Freddie Mac. "By taking a few moments to gather these documents borrowers can help their servicer understand their financial situation and reduce the need for repeat calls."

Can I Qualify for a Loan Modificaiton Without A Job?

As a follow-up to NPR's story about homeowners struggling to navigate their way through the Making Home Affordable program, a listener wrote to NPR asking whether people whose only income is unemployment benefits are still eligible to be considered for a loan modification under the program. There seems to be some confusion among lenders and housing counselors on this point. Chana Joffe-Wolt, an NPR reporter, ran it by the Treasury Department's point person for the program, who said, yes. Here's the full answer:

As of now, unemployment must continue for nine months to be counted, but we are consistently reviewing requirements. People on unemployment are eligible, and people on unemployment have gotten loan modifications.

There are a number of different parameters for eligibility (can be found on MHA website), so I can't comment on why this couple in particular is having difficulty. The administration is committed to keeping families in their homes and we are exploring ways to reach as many in need of assistance as possible.

This is consistent with the program guidelines issued by Fannie Mae, the entity designated by Treasury as the Financial Agent for the program. Under the heading "Verifying Borrower Income and Occupancy Status," the guidelines provide:

If the borrower receives public assistance or collects unemployment:

Acceptable documentation includes letters, exhibits or a benefits statement from the provider that states the amount, frequency, and duration of the benefit. The servicer must determine that the income will continue for at least nine months.

Wisconsin-based information management company offers new loan servicing software designed around Making Home Affordable

BROOKFIELD, Wis. - (Business Wire) Fiserv, Inc. (NASDAQ:FISV), the leading global provider of financial services technology solutions, announced today its Loan Servicing Platform, with extensive loan modification and loss mitigation features, is fully compatible with new guidelines from the U.S. Treasury Department on home loan modifications. In fact, from its inception the Fiserv platform was the first loan servicing system that was fully capable of supporting the Making Home Affordable Modification program.

As part of the Obama administration’s initiative, the U.S. Department of the Treasury created the Home Affordable Modification Program (HMP) as part of the Making Home Affordable program. Government Sponsored Enterprises (GSEs), Fannie Mae and Freddie Mac, were named as the administrators of the HMP. Designed to help as many as three to four million distressed homeowners avoid foreclosure by modifying loans and monthly mortgage payments to an affordable level, the program provides clear and consistent guidelines that the mortgage industry must follow.
The Loan Servicing Platform is an example of Fiserv’s processing services core competency and utilizes integrated default management tools that allow servicers to track and study the loans being modified. With this knowledge, servicers can formulate best-option workout scenarios based on operational business rules while meeting HMP guidelines.

Read full press release

An editorial and two responses to Gretchen Morgenson’s column

An editorial in this past Sunday's New York Times urges the Obama administration to do more to address the foreclosure crisis. Also, here are links to two interesting responses to Gretchen Morgenson’s column asking why there have been so few modifications:

Why So Few Mortgage Modifications? by Zubin Jelveh, The New Republic
Making Home Affordable Is … Not by Tim Fernholz, The American Prospect

So Many Foreclosures, So Little Logic

An article in today's New York Times reports that foreclosures are picking up speed. That's not a surprise. But what is surprising is that many lenders are apparently neglecting less expensive alternatives to foreclosure, alternatives such as loan modificaitons. When it seems to make greater economic sense to keep borrowers in their homes paying a reduced amount, than it does to toss them out and wind up loosing tens of thousands of dollars more, why aren't lenders selecting the less expensive alternative?

The article reports on a recent study of 3.5 million subprime loans in securitization pools overseen by Wells Fargo. The analysis showed that, among recent foreclosures from that pool, the average loss was 64.7 percent of the original loan balance; a staggering $144,000 loss on the average $223,000 mortgage.

This is much higher than the roughly $60,000 loss per foreclosure that others have estimated (see previous post). One explanation for the difference might be the recent study's focus solely on subprime loans. Another explanation could be the rapid decline in home values since the earlier estimates were calculated, a decline which means greater losses when homes are foreclosed.

Regardless of whether the loss per foreclosure is $60,000 or $144,000, the basic premise is that lenders have a lot of room to restructure loans and reduce borrowers' monthly mortgage payments -- and still end up in a better economic position than they would at the end of a long and costly foreclosure process. Why aren't more loans being modified?

The full artcile is available here.

A typical foreclosure costs the lender $60,000

A policy paper released last year by the Mortgage Bankers Association, an industry trade group, provides a useful summary of the significant costs borne by participants in the foreclosure process--with a focus on the lenders. While costs for individual loans vary widely, the paper cites research estimating that foreclosing a loan costs the lender nearly $60,000, on average. Other research estimates the cost to the lender somewhere between 30 and 60 percent of the outstanding loan balance.

Further reading:

Mortgage Bankers Association, Lenders’ Cost of Foreclosure, a policy paper prepared for the Congressional Education Series Briefing (May 28, 2008).

Darryl E. Getter, Understanding Mortgage Foreclosure: Recent Events, the Process, and Costs, Congressional Research Service Report for Congress (November 5, 2007).

Desiree Hatcher, Foreclosure Alternatives: A Case for Preserving Homeownership, Profitwise News and Views, published by the Federal Reserve Bank of Chicago (February 2006)

Karen M. Pence, Foreclosing on Opportunity: State Laws and Mortgage Credit, Board of Governors of the Federal Reserve System (May 13, 2003)

Amy Crews Cutts and Richard K. Green, Innovative Servicing Technology: Smart Enough to Keep People in Their Houses?, Freddie Mac Working Paper #04-03 (July 2004).

Obama Administration Expands Home Refinancing Program

July 1, 2009 - By Renae Merle - Washington Post Staff Writer

The Obama administration announced today an expansion of a key part of its foreclosure prevention program to allow more homeowners who owe more than their home is worth to refinance into lower-cost mortgages.

The effort is an acknowledgment by the administration that falling home prices limited the impact of its housing program, Making Home Affordable. Under the program, homeowners could refinance if their mortgage did not exceed the value of their home by more than 105 percent. Now, the administration is expanding the program to homeowners who are up to 125 percent underwater on their loan. more ...

Paper Avalanche Buries Plan to Stem Foreclosures

June 28, 2009 - by PETER S. GOODMAN – New York Times

LOS ANGELES — 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.

Ms. Montenegro, an intern at a local company that seeks loan modifications, dials Washington Mutual to check on the status of an application for a homeowner whose income has plummeted. She endures a Muzak-scored purgatory while on hold. Syrupy-voiced customer service representatives chide her for landing in the wrong department. She learns that the documents her company sent in have simply vanished — for the third time since November. more ...