Let's Study the Data on Loan Modifications

This is a curious post that I came across at the WSJ Real Time Economics site (strange only because I can’t find a link to follow to the author). Otherwise it’s fascinating. It is short, so let me post the whole thing.

Global Response: Writing Time’s Curious Capitalist blog, Barbara Kiviat says that the data on loan modifications is sorely lacking. “Rod Dubitsky, the head of asset-backed securities research at Credit Suisse who probably knows more about loan modifications than anybody else (you decide on your own what this says about our policymakers), thinks it’s ridiculous that no one has sorted all this out yet. He’s been pushing for a coordinated national effort around modifications since at least early November. He also wants banks that have rolled out their own programs — like JP Morgan Chase, Bank of America and IndyMac (under the direction of Bair’s FDIC) — to release standardized data about what, specifically, they’re doing. He wants disclosure around the type of modification (e.g., interest-rate reduction, extended amortization), the documentation that was used to determine how much a homeowner can pay, other loss mitigation options that were considered (for example, HUD’s Hope for Homeowners program) and the math that shows the decision that was made is the best one, assumptions about future home prices, and a lot of other things… And that’s how we get around to chipping away at unemployment. In talking with Dubitsky, he made a remark about the government needing a “data swat team.” He pointed out that there are quite a few unemployed Wall Streeters who, guess what, know something about mortgage securities and sifting through data and building computer models. I liked what he was getting at: evidence-based public policy. Fascinating thought, no?”

If you noticed in my recent post about Barney Frank’s continuing fascination with Sheila Bair and her mortgage modification schemes, the above thought deserves more airing. There is a lot of talk about modifications and cramdowns around and, without going into the merits or demerits of either one (other posts on this blog have beaten the subject to death), the idea of getting some data on which to make a decisions seems like a good one. Perversely, the FDIC has been one of the least informative on the performance of their IndyMac loan modification program while aggressively pushing the concept on the entire industry.

We are about to spend tons of money on this. Since there is probably some pretty good data available right now why not try and figure out if it is going to be wasted.

more: here

Comments

[petercollins:]

Loan Modification works. I had it done and it saved my home. I found The Loan Modification Network and they were garcious, sincere and expedient.
See us-loan-modification.c...

Jan 08 02:41 PM

[petercollins:]

I hear the government is going to incentivize the banks to do loan modifcications by compensating them. See article posted on usloan-modification.co...

Jan 08 02:45 PM

[Barbara Kiviat:]

Here's a link to the original post, which is fantastically well-written if you ask me:
curiouscapitalist.blog.../

Jan 08 04:01 PM

[travis3:]

I had a modification done about 2 months ago and it has made a real impact on my life. I was barely keeping up, fell 2 months behind and was headed for worse. Chase modified my loan in a significant way. I had almost given up on contacting them so I used a company to help me. It took me a bunch of calls and talking to some real creepy people but I found a good company called RapidModify.com They did not charge me even thgouh they had my credit card for 2 weeks plus until they actuallly finished my modification. Real solid people. These modifications can work as long as people are honest about their financial situation. It did for me.

Jan 08 04:14 PM

[Tom Lindmark:]

Barbara,

Thanks for the link. I just browsed it but it looks to be very interesting.

Jan 09 12:19 AM

[Andrew Trau...:]

I actually had a bad experience with one loan modification company and then a good experience with another. The first company ( an ex-mortgage broker) took my fee but didn't do anything for over 3 months. It wasn't until I had my cousin, an attorney, threaten them will legal action did I get my money back. My cousin turned me onto an attorney friend of his ( James M. Parsa ) who is doing loan modifications and his firm ( National Loan Modification Center ) got my payment reduced by over $600 per month ( not much to some people but a great deal to me ). People have to be very careful. The process works but people should do their research. Just My Two Cents.

Andrew Traulsen

Jan 19 06:47 PM

[1234987:]

Barbara Kiviat,

I read some of your articles @ time & in Denver, lets try & offer some
solutions. We have already defined the problems, loose loan requirements, easy money, unscroupulous lenders/borrowers,
no government regulations. (I think the sudden rise in interest rates).

Housing solution!

I, Remove 2 million homes from the MLS (for Sale) that financial institutions currently have
for Sale. Any Institution that received TARP funds will be required to first offer the home
to the RTC for purchase. RTC will not purchase any home above $417,000. No Jumbos.

2, Government Resolution Trust will purchase these homes from these institutions for 20%
less than original first Mortgage amount. No negotiating.

3, 600 billion dollars to buy these homes (app $300,000 each average) will come from the sale
of long term 30 year bonds. (Currently app 3-5%) issued by Government.

4. RTC will send these homes to the local HUD offices for disposition thru voucher program
(rentals). $5000 will accompany each home for repairs & upkeep. eventually as the MLS
system reaches certain inventory levels (i.e. 30-60 days) HUD will be allowed to place these
homes on the sale market. If the inventory increases HUD will remove homes accordingly.
This will be a local HUD market decision, differing from region to region. Rental Income will
help cover expenses such as maintenance, insurance and property taxes.


Pro's:


Supply/demand economics will create a bottom in the housing market once 2 million homes
for sale are removed. Prices will start to increase.

Local governments will see a bottom in declining values and revenue will increase as values
slowly stabilize and slowly increase.

Individual homeowners as well as other sellers will find a housing market ready and able
to absorb the inventory.

Banks will now have a fresh source of funds to lend on homes that are not declining in value.

Banks will be able to clean balance sheets of hard to liquidate assets.

Lending/leverage/credi... markets will slowly begin to return to normal. Applications will
increase, appraisals, home inspections, title work, all types of stimulating activity for business.

As home prices stabilize and increase the local HUD agency selling homes over a 3-7 year time
frame will see prices rise for properties purchased by the RTC. HUD will only be required to
return to RTC the original amount of the purchase price plus the 20%. Or the original amount of the
selling banks first mortgage.

Once the RTC is closed and all homes sold, all losses (if any) will be covered proportionately
by the selling institutions. All financial Institutions selling homes to the RTC will share the loss
at the RTC as a percentage of total homes purchased and homes sold to the RTC. That percentage
will be the Banks percentage for covered losses. These losses will be paid by the banks over a 30 year period liquidating the original bonds sold to finance the purchase.

Other agenda items:

Mark to Market accounting will only apply to non performing assets.

Spend 50 billion each year for the next 3 years rebuilding infrastructure. Bridges, Roads, tunnels,
water plants, dams, levies anything to create jobs.
Stimulus checks for $300 only help pay a credit card bill once.

Any comments?

Feb 18 04:28 PM