The considerable gap between loan modification objectives and what really can be achieved is never more apparent than at the doorstep level.
For more than a year, government thinkers have sought to mitigate the swelling tide of mortgage delinquencies that lead to foreclosures and all the nasty results that come from the untimely and unwanted loss of a home. Leading these mitigation efforts has been a highly publicized but only modestly successful national loan modification drive, aimed at keeping members in place, albeit on a reduced monthly payment schedule.
The Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac--the primary agencies covered by the Home Affordable Modification Program--admitted this summer that the agency is not getting the volume that is potentially there.
The likely cause for this sub-par performance, according to officials, is a general lack of member participation. One said: “They are not responding to requests when we contact them about the program. A lot of them don’t follow through with the necessary paperwork and many borrowers are very fearful and don’t know what’s going to happen.”
And, an industry consultant told Congress in June that assuming a 40 percent re-default rate, only 200,000 of all permanent modifications will likely be successful over the long-term; well shy of the three to four million goal established at the outset.
No surprise then, that lately the modification philosophy has widened--some say become more realistic--to include other approaches (short sales, deeds-in-lieu), all of which end with the departure of residents from homes they simply cannot afford.
Data on property conditions are critical
On both ends of the resolution spectrum, there is a growing need for field service professionals to be out knocking on doors, delivering documents and collecting front-line data about the true state of a property’s occupancy and conditions. Never has this “boots on the ground” and “eyes on the street” contact been more important than today, as credit unions demand accurate, detailed data on property conditions, inhabitant characteristics and loan viability.
Perhaps the “proof of the pudding” for this “disconnect” is in the recent statistics from two reputable, industry sources, Fitch Ratings and Dow Jones. Fitch reported that a sizable amount of modified mortgage loans could default again within a year. And Dow Jones stated that these findings reinforce criticism that HAMP “will only result in delaying the inevitable foreclosure filing for mortgagors who cannot afford to remain in homes due to a number of factors.”
Stark statistics proves this point. HUD recently reported that 152,000 borrowers were dropped from the trial modifications in May while HAMP servicers converted just 47,700 borrowers from trials to permanent modifications, down 30 percent from April.
When we are face-to-face with members, we find that many have given up talking to their servicers, convinced there is no hope or mislead into believing they are better off ignoring their financial responsibilities. As we deliver reality and explain the practical options, we are able to establish a conciliatory tone. Indeed, a lot of what we do often feels like “therapy in the field.”
Sometimes the problems are simple; maybe the credit union has lost a member’s loan mod paperwork and all it takes is getting the homeowner on the phone with the right representative.
Unexpected findings
Member contact also can produce unexpected findings, many of which would very likely irk the general public if they could see what we do: someone opting to strategically default on a mortgage obligation, driving away in a late-model luxury car, towing a fancy boat en route to a vacation resort.
We have strengthened and stressed our client outreach in search of non-owner-occupied properties, those simply vacated or occupied by someone other than the owners. The initiative entails skip-tracing (finding these owners who have disappeared) and providing them with specific loss mitigation solutions, typically beyond the government programs—HAMP and HAFA.
These are the pieces of reality only on-site contact can unearth, enabling a credit union to take the most appropriate actions. Without this information we are left guessing, at best, or at worst “holding the (very expensive) bag.”
So much of what we hear now, heading into the third year of this housing downturn begins to take on “urban legend” characteristics. Walk-aways are one of the best examples of misconceptions feeding on themselves. More delinquent members, for example, believe that because they put no money down on a house purchased at the price peak in the market have no real remaining investment (a.k.a. “skin in the game”) and, thus, are perfectly entitled to close the door behind them and never come back or make another mortgage payment. Some stop paying for months or even years before leaving, and then only depart when the sheriff shows up armed with the final eviction paperwork.
In southern California we discover people who have walked away even when they had considerable money into the property. These are not just subprime cases--it’s across the board and represents a mindset, unfortunately more prevalent among younger people.
Many older Americans with firmer (more traditional) beliefs about meeting their obligations find it hard to believe someone would or could just ignore such an agreement. Any soft-hearted notions about “moral hazards” are fading from the landscape faster than one might like to admit.
A true revival of the housing market must have that underpinning of not only trust but verification as well, if we are ever truly to get back on track.
Jay Loeb,
Vice President and a principal owner of National Creditors Connection Inc., Lake Forest, Calif., a field services firm. He can be reached at: jloeb@nationalcreditors.com or 714/227-7449.)
