Mortgage Aid Program Floundering
Tags: Financial Crisis.
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The news story:
The government’s $50 billion program to ease the mortgage crisis is helping only a tiny fraction of struggling homeowners, and a list released Tuesday showed which lenders are laggards.
As of July, only 9 percent of eligible borrowers had seen their mortgage payments reduced with modified loans. And the first monthly progress report showed that 10 lenders had not changed a single mortgage.
The report indicated that lenders such as Bank of America Corp. and Wells Fargo and Co. have lagged behind government expectations. Both banks received billions in federal bailout money.
BofA modified just 4 percent of eligible loans, and Wells Fargo 6 percent. Wachovia Corp., which was taken over by Wells Fargo in December, modified only 2 percent.
“We think they could have ramped up better, faster, more consistently and done a better job serving borrowers and bringing stabilization to the broader mortgage markets and economy,” said Michael Barr, the Treasury Department’s assistant secretary for financial institutions. “We expect them to do more.”
This is a complex issue and its not entirely the banks fault. Its mostly their fault, but not entirely.
First off, you have to keep in mind that “servicing bank” and “holder of the note” are only rarely the same entity, especially in the larger banks. “Un-Named Bank A” services my loan, but my note is held by Freddie Mac – having been sold to them by Centex Mortgage, my loan originator. I can talk to “Un-Named Bank A” until I’m blue in the face (and I am talking to them, and I’m nearly blue), but when push comes to shove, “Un-Named Bank A” can only do what the note holder allows – and therein lies the problem.
We have three parties, for most mortgages, and they are all working at cross purposes:
1. Servicing bank just wants to keep making money servicing the loans and I suspect that they get paid at least partially on the amount of loan they’re servicing. I might be wrong on this, but the deliberate obtuseness of Loss Mitigation departments at these servicing banks indicates either massive stupidity or a desire to spin things out and hope that little or nothing will eventually have to be done.
2. Borrower wants to “cram down” the mortgage amount to be in line with current market value. If you owe $400,000 on a house worth $200,000 there is no sense at all – financial, for certain; in morality, it is a bit complex and I’m not qualified to render a final judgment on such things – in shoveling money in to it…even if the mortgage is stretched out to 40 years and the interest rate dropped very low, the fact of the matter remains that you are paying for a house which will never be worth what you paid for it (at least, not in any reasonable time frame – the most optimistic people actually involved are figuring 10-20 years for a price recovery…the more negative are figuring that we’ll never get back to that bubble level in real terms).
3. The note holders seem to be viewing a “short sale” as preferable to “cram down” – in other words, they’d rather have the $400,000 house go on a short sale for $150,000 than re-do the mortgage to $200,000. A 150k bird in the hand seeming to be more desirable than a 200k bird in the bush. A “short sale” also helps the note holder in that, unlike in a foreclosure, they don’t have title and therefor responsibility for the house. This relieves the note holder from all sorts of hassles and liabilities.
In my view, “cram down” is the only logical, moral and financially responsible thing to do – and don’t think that its all the banks losing on such a deal. As a matter of fact, the only people currently losing on the deal are the borrowers…time for the banks to take a bite of the poop sandwich. These borrowers have paid many tens of thousands of dollars since loan origination and that money is gone. They’ve lost that money – now its time for the banks to lose some, too. Now, why doesn’t this happen?
The managers of the banks – service and note-holder – are afraid. Scared spitless at losing job, wealth, position, prestige…for the people who run these financial institutions the raw, stark thought of not having what they have now has made them simply afraid to make a decision…because if you make a decision, you might make the wrong one, and that could cost you. They are standing about, Micawber-like, hoping that something turns up to get them off the hook – to make it so that they don’t have to make a decision. They look to China’s booming stock market, Obama’s spendulus, book keeping which allows them to ignore “one time” losses…something, anything which puts off that terrible day when “yes” or “no” will have to be uttered.
Its going to be interesting to watch – especially as the second wave of foreclosures hits (which won’t show up as foreclosures, per se, but as a vast increase in non-performing loans), commercial lending collapses and China’s stock bubble goes down in flames. A bit scary, too, as it will probably cost me my job – which is bad in the sense of not having income, good in the sense that I will have my very reasonable excuse for disengaging with this aspect of our economy.
Thank you for visiting Blogs For Victory. If you enjoy our content, please consider making a donation to help us cover the costs of our servers.Mark Noonan is co-author (with Matt Margolis) of Caucus of Corruption: The Truth About The New Democratic Majority. He also blogs at Nevada News and Views. Follow Mark on Twitter.
10 Responses to “Mortgage Aid Program Floundering”
Caucus of Corruption
Astute analysis Mark. I work with this daily and can tell you that one reason for the lack of mods is the fact that many customers are declining the, very worthless, mod efforts being offered, and preferring to do the short sale mainly because of the loss of values that may never be recovered, as you noted.
While loss mit dept’s have been unorganized and difficult to work with in the past, they have recently gotten their act together and are much more proactive. However, I still scratch my head over the fact that banks, who would prefer to do the short sale and in essence lower the principle for a new mortgage holder, choose that option rather than address the principle balance with the current lien holder, provided that the current lien holder is in good standing and financially capable.
Over 1.5 million new foreclosure notices were delivered in July. This is not going to stop any time soon.
Speaking of homes and mortgages, I found this little gem posted on the Daily-Pitchfork Hell’s Newspaper:
“But the latter is really a confession because as much as Mark Noonan would have you believe that he was married later in life for the first time as a “good Catholic” he was married before to a woman named L*** Noonan and he owned a home with her until in H********, Nevada until their divorce in 2***.” (edited by me)
It also contained a link that I emailed under Contact Us in the general inquiries section.
Sorry Mark. This is way below the belt even for those losers. Just when you thought they could not sink any lower.
Cluster,
You might have a far superior understanding than I do – I know it from the semi-inside, but mostly from the borrower’s perspective.
Tired,
Amazing that someone clearly took a lot of time to get wrong information. As it turns out, I’m not the only Mark Noonan in existence. If one is not careful, you’ll find that I’m also a construction manager in the United Kingdom.
As it turns out, I’m not the only Mark Noonan in existence.
That’s hysterical.
Surprising that little common factoid eluded the brain trust at the pitchfork.
Mark,
I’d say the bank’s approach is perfectly reasonable on these upside down loans. Only a fraction of these deals are going to go into short sale or foreclosure because the borrowers are more often than not able to make the payment they qualified for and they don’t want the black mark on their credit. If the banks just decide to start cramming down mortgages, everyone will want in on it and they’ll have to write down the whole portfolio. If I’m the bank, I’d just let the minority fail.
Morally speaking, why does the bank need to eat any of the “poop sandwich”? They have a debt interest in these home purchases, not an equity interest. I didn’t hear anyone suggesting that home sellers share the gains with the bank when the housing market was going up! Morally, the home buyer alone should enjoy the gains or suffer the losses of their investment decision.
extra,
People are getting less and less concerned about a black mark on their credit as they find – even with 800+ FICO scores – banks are shutting down their credit cards.
The part of the “poop sandwich” the borrowers are eating is the fact that they’ve put a lot of money in to their houses which they will not get back. If banks don’t want to have a huge increase in houses to sell in a depressed market, they’re going to have to take a bite. In the long run, if they “cram down” their “losses” will be small and, at any rate, won’t be losses…it’ll be just less money than they originally counted on (keeping in mind that a mortgage usually about doubles the purchase price of the home…now, instead of 100% returns, they might only get 25%. Boo hoo hoo.). I realise that banks figure they have only a debt interest in the house and that is what is making them, thus far, sticky about going with the “cram down”…but millions of people – good people who can afford their mortgage – are getting ready to bag the house. It just doesn’t make sense to pay, say, 950k on an originally 425k loan for a house now worth 200k. Financially, to do such a thing would be stupid when you can bag it, take the hit on the credit rating, wait two years and then buy a better house for a lower mortgage amount than was let go.
Look, the whole thing sucks – we were suckered and we suckered ourselves. Its not the banks fault in the sense that they didn’t set up the situation, but for decades they’ve profited handsomely on our fiat-money, usury-driven economy…now the piper has to be paid. And this means everyone has to kick in and its going to hurt and hopefully we’ll all learn our lesson.
so the gabby not-British not-man not-woman not-economist not-finance guru was on the blog for what, three days or so, and had to indulge in vulgar and crass language? What a shock. Love the fact that the degenerates at the pitchfork had to try to slime Mark—what a bunch of losers.
I think we’re getting stuck on what the spreadsheet says to do (and what we might get away with) verses what is moral. I personally know many people who “traded up” to fancy cars, remodeled luxury kitchens, vacations and the like by regularly refinancing their home mortgage through the 00’s. Sure, you can’t take the kitchen with you (well, maybe the Sub-Zero) but to get all that and walk away from the debt is the moral equivalent of stealing.
Anyway, I think your model of 50% reduction from the peak and prices never coming back for 10-20 years may be true in Las Vegas and some California exurbs like the Central Valley, but most markets aren’t seeing value degradation like this. Also, most people didn’t have the misfortune of buying at the peak. I’m sorry that you personally find yourself in this situation and I’m sure you weren’t motivated by vanity and greed like these other folks I know.
I will have to agree with extra about not every where seeing the huge loss of value in house values. I am seeing homes here in Omaha that are selling at prices only slightly below what they did a year ago. A house that sold new at 200k is now selling used at 150-175k. Yes, a loss, but not as bad as it could be. BTW – that house generally is less than 5 years old, has 3-4 bedrooms, and 3 bathrooms. More amazing is the houses in my neighborhood barely lost any value. Several have sold within 5-10 percent of what they would have a year ago. Or, at close to the assessed value.