If mortgage companies start to feel like they're losing elbow room, it's probably because they're starting to get nudged by the Obama administration. The folks in the White House are planning to kick off a campaign to squeeze mortgage companies to lower payments for even more borrowers who are in trouble. The $75 billion program, financed by taxpayers, to keep homeowners from falling into default appears to be in trouble.
Mortgage lenders have increased their efforts to modify borrowers' mortgages, but most of them are still in a trial stage, which will last up to five months. Only a handful have been made permanent, which isn't good enough for Washington. The Treasury Department's assistant secretary for financial institutions, Michael S. Barr, told the New York Times, "The banks are not doing a good enough job," continuing, "Some of the firms ought to be embarrassed, and they will be."
A spokesman for JPMorgan Chase (JPM), Tom Kelly, claims, "We've poured resources into this," and "We've made dramatic improvements, and we continue to try to get better."
While shame is certainly among the tools Barr says Treasury will employ, the department is also going to hold off on the cash incentives it had agreed to pay mortgage lenders ... until the loan modifications become permanent and more widespread. To this end, Barr explained: "They're not getting a penny from the federal government until they move forward."
A Congressional oversight panel discovered last month that not even 2,000 of the half million loan modifications in progress had gone from trial to permanent. An update is expected next month, with Treasury expected to reveal that only tens of thousands of loans have been modified -- out of 650,000 now in the program. Originally, the administration hoped to protect between 3 million and 4 million homeowners from foreclosure. But, Edward Pinto, formerly the chief credit officer at Fannie Mae (FNM), said, "They're going to be lucky if they save one or one-and-a-half million."
Some senators are tossing around the notion of a new foreclosure prevention program. It would be based on one launched in Philadelphia last year, requiring court-supervised mediation intended to help the parties reach an "equitable solution," according to the New York Times, before a foreclosure sale could be completed. But, others have something more radical in mind: giving bankruptcy judges the right to amend mortgages. The goal would be for this power to push lenders to extend reductions.
Of course, the lawyers defending homeowners don't think the current Treasury program is working. The mortgage lenders receive $1,000 up front from the government and $1,000 a year for three years for every mortgage for which they agree to lower payments, with the thinking being that a small amount of reliable cash is better than disproportionate risk. Borrowers have to participate on a trial basis before the modifications to their loans are made permanent.
The attorneys say that the extensive documentation required to participate in this program tends to get lost easily, and mortgage servicers are making it harder for them to complete transactions by "losing" files and changing fax numbers without warning.
But, let's be realistic. While these allegations could be true (mortgage lenders have shown themselves to be anything but above reproach), the legal community stands to gain the most if a judicial approach is adopted. After all, who'd be talking -- and billing -- in front of the judge?
Closing Bell: When We All Love the PIIGS (NBG, SQNM, PG, ERTS, KO)
Serious Money: Cheapest Stocks List Shrinks from 26 to 21
Chasing Value: Hasbro Earnings Makes My Point
Reader Comments (Page 1 of 1)
11-29-2009 @ 6:01PM
David W. Huston said...
Obviously, there needs to be a new attempt by the Democrats to enact bankruptcy law reform to permit bankruptcy judges to cram down residences to their fair market value.
11-29-2009 @ 7:21PM
william lindblad said...
The one problem that exists is the same one that created this chaos - and it is squarely the heads of the banking system itself. I really should not have to elaborate, but for those that may have missed a point or two:
Cheap money and a Libertarian view on the part of government supervision. That's the root cause. But on the same note the government did not tell the financial system to engage in shady and risky transactions like derivatives, mortgage backed securities and wholesale lending without considering the prospect of repayment. In the frenzy to reap the most dollar rewards the institution "too big to fail" was created. Monkey see, monkey do and follow the leader applies. Policy created this mess and both major political parties share in the blame. When the gold mine went bust the government had no choice but to intervene. A recession is far better than a depression.
And here we are. Policy again will dictate the outcome. As the blog states loan modification, while a great idea, appears to have major hurdles. And again, it is the banking system. Not only are they not embracing they actively seek all avenues to make the recession longer and deeper. Credit. It is in a general holding pattern and putting a stranglehold on business. Credit cards. The bankers ideas in this area were so bad that both Congress and the Fed had to get involved. Worse, so far the banks have not responded in a favorable manner, but in turn have looked (and continue) to find ways to circumvent all positive intervention.
What does this all tell you? It tells me that we need stringent regulation in the financial sector along with the ability to remove and replace executives and boards whose actions threaten the well being of the U.S. But in our system, we can't do that. The system does have it's faults and this is certainly one. The entire country is at the mercy of policy - policy developed in the financial arena and not the government. If this is the land of the free that elects our representatives to make our laws and create our policy - than in effect, the banking systems is thumbing it's nose at us. That has to change before things will get better.
It is time for Congress to allow the shareholders of these major corporations to actually vote on boards and exec's, along with their pay packages. That would be a good start - they might pay attention if they were really in threat of losing their jobs.