“We’re never going to be able to process the number of workouts and modifications that are going to be necessary doing it just sort of one-off,” Mr. Paulson said. “I’ve talked to enough people now to know there’s no way that’s going to work.”
Amen! I have been saying this all along and this will remain a huge issue as hundreds of thousands of mortgage need to be worked out.
Paulson is “aggressively encouraging” lenders and servicers to scrap the original plan of working with borrowers on case by case basis and adopt a broad approach to loan modifications. Paulson said in an interview yesterday that he wanted lenders to develop criteria that would enable large groups of borrowers who might default on their payments to qualify for loans with better terms.” He also said the number of potential home-loan defaults “will be significantly bigger” in 2008 than in 2007.”
It is not a cure all. It is not the perfect solution. Yes, there will be people that lose here. But it’s truly the only way.
Tanta from CR had something to say as usual about Paulson’s plan and I don’t always agree with her capitalistic views, but I did agree with her on this point she made.
“You just have to break down and look at the borrower, the property, and the overall situation, to see if this is possibly a 90 center or inevitably a 70 center.
That requires people with skills. Enough people with skills to look at a lot of delinquent or about-to-be delinquent loans fast enough to not miss your window of opportunity on that 90 cents. Time is money in this business.
The industry is telling you right now that they just don’t have enough people with the right skills to be able to wade through all the problem (or potential problem) loans fast enough to make the workout/foreclose decision. There are two reasons for this. The first is inevitable: no one runs a servicing operation with that many extra people sitting around waiting for a mortgage crisis. The second is not inevitable but is surely predictable: once the crisis happens, lenders start laying off, not beefing up, because crisis means earnings are down and you know what that means. I’m guessing that you had some experience with that kind of issue at Goldman. Plus the whole thing is complicated by these complicated securities we cheerfully put these loans in, that now have a bunch of complicated rules for getting them out. You know how securities lawyers bill out, don’t you?”
This is a problem now and it will be a HUGE problem later. These lenders and servicers simply do not have enough man power in these loss mitigation departments to handle the struggling borrowers right now. The confusion and lack of organization that is going on in these departments right now is ridiculously shameful and to the point of abusive.
If efforts are scaled up and lenders agree to and kind of mass loan workouts of these mortgages, we are still going to have this problem, but intensified by a million fold. Plain and simple.
In order to develop a “standard criteria” as Paulson is pushing for, would require lenders and servicers to beef up these departments and invest hundreds of millions of dollars to essentially “fix” what they helped create. They need to be held accountable and forced to “properly” employ “legitimate” efforts to work with borrowers.
There simply is no way in hell, that this can be done without a MASSIVE effort form lenders, servicers, government, non-profits, legal aid, third party loss mitigation companies etc.
Government needs to approach this like they would a natural disaster and either get lenders (who I believe should pay for the toxic loan clean up) to spend the necessary money to hire personnel and training or our government will foot the bill.
That’s our choices for now. Like it or not.
{ 12 comments… read them below or add one }
Politicians may have the best intents, but they do not understand the mortgage securitization business. Consider this:
Many of the defaulted mortgage loans of subprime borrowers can not be salvaged. Why? Here are a few reasons:
1. The loan itself is upside down
2. The borrower has no skin in the game and simply walks away
3. Contactual constraints prevent the loan from being recast
I think Paulson understands the mortgage securtization business very well, since he does come form Wall Street and he has surrounded himself with the major players that know this better than any blogger or reporter.
They actually know more than they tell us and if they are worried and they say that loan modifications are the only way, well, I would listen.
I agree, many mortgages and homeowners will not be saved and they will be part of the collateral damage.
Good Luck to HIM! He needs to think about Plan B, OR F for Fraud, IE Predatory Lending and Predatory Mortgage Servicing.
I personally did loan modifications for Aegis Mortgage Corp. prior to filing for BK. I myself took into consideration location of borrower, type of income and earning potential. Borrowers were thankful for the modification and could afford what we gave them, most times it was at or below their start rate.We tried to right a few wrongs done at origination. I think if a modification would work than why not do it. I pumped out over 200 loan modifications per month in our department. There are some mortgage companies already doing workouts, but more should join in.
I truly do not think that anyone understands about predatory servicing and what these servicers are doing to borrowers.
I know you at MSfraud have covered this extensively and would love to maybe collaborate on some future posts about this very issue.
Thats great news. I would love to hear from you via email and maybe you can post some helpful advice to readers on the blog in regards to loan modification and loan workouts.
I’ve decided rather than play phone tag to have my loan modification done in person, at Countrywide’s Financial Center. I am scheduled to go there on Friday and speak to the Loss Mitigation Department so that they can get my financial information.
Today, the manager of the department told me she’d call and give me the number to Jerry Durham, who heads the Home Retention Program. When I didn’t hear from her by noon (about four hours later), I took a walk — fifteen minutes, and I was at her office.
She smiled, but I don’t think it reached her eyes. I want her to know if she doesn’t call me back I WILL be at her office and can be there in minutes.
She called the Loss Mitigation Department for me right then and there in her office and has committed to fax all the documents that need to be sent for me. She’s also offered to look over my loan documents for me. The manager of the office seems sincere but I am jaded.
The loss mitigation department lady told me that they called in the morning and spoke to a Mister — I cut her off and told them there WAS NO MISTER. I told her I have zero interest in playing phone tag with anyone and would be doing all of the paper work in office at the center. Hopefully this will turn out to be a smart decision. I’m keeping my fingers crossed for myself and for all of us struggling to end this nightmare. Anyone have any suggestions as to exactly what financial information I should bring with me to the meeting on Friday. I own a S Corporation, so I don’t have my 1099s for 2007 yet — only what’s been deposited in my business accounts can be shown by way of bank statements.
I also have two tenants, so I can show the income from the rental units but other than that, I have no pay stubs or anything like that.
JacMac….CW will ask you for everything under the sun. If it shows income, then take it. Tax returns, bank statements (last 3 mo), hardship letter (and make sure it is lengthy and very descriptive). Make sure your loan number is at the top of all the documents!!! If you don’t get anywhere, post again and I will get you names and numbers of heads of that department and/or email addresses because they shut down all voicemail systems. Good Luck my fellow CW friend.
Thanks so much!!! I want to go in with guns blazing!
4. The loan was to a speculator or flipper with no real assets or income
5. The loan was planned to be paid for with the “cash out”, which ran out
6. Borrowers are behind on property tax payments too
7. Some borrowers can’t even make the payments on the teaser rate! MANY of these defaults are occuring before the loan resets!
I am concerned that this is not going to solve the problem. The problem is 1)Too much housing inventory 2)Tightened credit condition and 3)Reseting/Foreclosures…
Although he is proposing a situation to help # 2 and #3 I think this idea is to HOPE that problem #1 starts to slow down and recede..I have a feeling that the Fed is trying to buy time..5 to 7 years with the HOPE that inventory goes down and prices stabilize…What scare me is what happens if doesn’t work that way? And is the Fed telling us in their own way that the housing bottom and return to normalization is 5 to 7 years away??…
So far all the things the Fed has tried to get us out of this issue,(lower discount rate, lower fed rate, tell lenders to work with borrowers…)NONE have worked or kept us away from talking about a recession…as a matter of fact the recession talk has become a growing concern since Fall..
I was told to modify my loan would take me $4,000.00 for Bank America to do this . I request this Tom Clark to put this in writing but he refused.He wanted me to take out a loan with Fannie Mae to do this and pay Bank America $4,000.. I will lose all my equfity in my home. I was told to pay two house payments which I did and now they refused.