Oct. 14, 2009
Written 8:15 a.m. EST
TWILIGHT OF THE MODS: I just spent an extraordinarily busy three days at the Mortgage Bankers Association's annual conference, in San Diego. It's going to take a long time to digest all the information. Here are a few superficial observations:
A cynical can-do spirit pervaded the convention. This is a huge change from the MBA convention two years ago, which was as depressing as a rum distillers' convention after passage of Prohibition. At the next MBA conference, one year ago, the mortgage bankers were still shell-shocked by the financial crisis that they had unleashed, and were annoyed and confused when protesters disrupted the proceedings. They genuinely seemed to not understand why anyone would protest a meeting of mortgage executives.
This year, fortified with billions of dollars' worth of TARP loot, and with interest rates brought artificially low courtesy of more than a trillion dollars in Fed subsidies, mortgage bankers resent being asked to eschew foreclosure whenever possible. They don't say it outright, but there's a lot of eye-rolling and shrugging when mortgage people talk about rules and procedures that are newly mandated by the federal government that is spending more than a trillion dollars to prop up the mortgage industry in particular, and lending in general. They want the cash, but not the strings attached to it.
Oh, they'll play by the government's rules, all right, just as you grudgingly obeyed your parents' ridiculous midnight curfew when you were 16 years old and had just snagged your driver's license. That's what I mean by the bankers' cynical can-do spirit. But after almost bringing the world financial system to ruin, mortgage bankers still believe things would work out better if they were left to do business with a light regulatory hand.
Instead of being sent to their rooms without supper, the mortgage bankers got their very own performance Tuesday night by the Beach Boys. (I didn't go -- had to catch the red-eye -- but I did hear them rehearse "Sloop John B." Nice.)
Mortgage executives say they are under extremely heavy pressure by the Obama administration, especially the Treasury, to modify as many mortgages as possible. They see this as political grandstanding by the administration, and they have a point. Remember last week, when the administration bragged that 500,000 homeowners had been placed into trial modifications? Half a million is a lot of homeowners, but I've got another number to share with you.
First, let me explain briefly what a trial modification is. When you're having trouble making payments and you request a mod under the Home Affordable Modification Program, or HAMP, the mortgage servicer asks you a few questions, and if it looks like you qualify, you are enrolled in a three-month trial in which your payments are reduced. If you successfully complete the three-month trial period, AND if you return more than a dozen financial disclosure forms that are properly filled out, dated and signed, then you just might qualify for a permanent modification.
OK. So. Half a million trial mods since the program began in March. And how many trial mods have become permanent?
Two thousand.
That's 40 per state in a 7-month-old program, or less than six per month per state. With a Wagnerian flourish, I call it "Modderdammerung."
Now, that's an unfair way to describe it. The servicers are willing (grudgingly) to modify mortgages, but the federal government and Fannie Mae and Freddie Mac are continually coming up with new or amended rules. Companies are reluctant to print forms because the forms are changed frequently. HAMP ramped up gradually, and because it takes three months to complete the trial period, and another month or two (at minimum) to convert a trial mod to a permanent mod, it's no surprise that so few HAMP mods have been made permanent. Still -- 2,000. I'll bet there are 2,000 foreclosures and short sales in just my ZIP code.
A year ago, I heard a lot of talk from consulting companies that mortgage servicers would need outside expertise to help them decide who would get modifications and who wouldn't. It turns out that decision-making is simpler than expected. What vexes mortgage servicers is the more mundane task of gathering and verifying financial documentation from borrowers who have trial mods.
An executive with Cenlar, a major mortgage servicer, said his company collects 16 pages of documentation from people who have HAMP trial modifications. All 16 pages have to be returned, with all blanks filled and all boxes checked and with every signature line signed and dated. He said three-quarters of trial mod recipients don't turn in any paperwork, 24 percent submit incomplete documentation, and only 1 percent send complete documents.
Various agencies and companies are tackling this issue, and I'll write about those initiatives later. I've rambled far too much already.