Mortgage Servicing from Modification to Foreclosure (a recap….)
Some of you may have tuned in or read info regarding the hearing held 11.16.10 “Mortgage Servicing from Modification to Foreclosure.” It was chaired by the BANKING/SENATE COMMITTEE and offered a glimpse of what is wrong with our mortgage financial system as well as the political minefield that can only be defined as Smoke and Mirrors 101.
I’ve been in the industry over 25 years, with a good portion in the finance sector (Mortgage, Banking). In 2005 I was heading up a division for a mid-size bank/mortgage company which was on the rise. The public had a very ripe appetite for the Option-Arm product and one of my staffers, who was a seasoned veteran and well respected in the industry use to come in my office on a more than regular basis proclaiming “the industry is going to explode – it’s going to be bad………” Of course that was in 2005!
As his prophecy was realized in 2007 all hell was breaking loose and eventually the bank was seized by the FDIC, few still could appreciate the impact of the housing debacle set to land on our doorsteps. Coincidently in 2006 Congressman Dodd starting hearings on this topic, so quickly to fast forward to the recent hearings.
These hearings are interesting as those (CEO’s) called in to testify on why their products are so damaging do not believe in simple answers. These are high priced executives and you would think their marketing/public relations unit would make sure they are equipped to engage in dialogue but instead what I saw was pathetic people looking extremely nervous, if not out of place trying to justify something obviously “over their head” otherwise, why couldn’t they just answer simple questions? On the other hand, committee members come equipped with documentation and testimony from constituents from their districts providing horror stories of the mistreatment and humiliation from the companies called in to speak.
Nevertheless as public discourse goes, this is the most effective strategy to allow voices to be heard….absent from civil legal proceedings.
The Bottom line is this………Banks and Mortgage Companies provide financing instruments (a mortgage) to fund a homeowner’s desire to purchase a home or refinance their existing mortgage(s). This is necessary but most simply do not have the cash to purchase a home. Most Banks and Mortgage companies provide financing based on a standard set of guidelines. Once the financing is secured, the instruments are sold on what is called the Secondary Market. Investors realize the profit potential to make funds available and are eager for the Banks/Mortgage Companies to originate/make the loans, which they will back with their funds. Consequently, you’ve got the Homeowner, The Bank/Mortgage Company and the Investor. The Investor has no desire to have any relationship with the homeowner, thus they rely on the Bank/Mortgage Company to serve as the primary source of contact with the homeowner with regards to handling the monthly payments and/or any correspondence regarding the mortgage. In a traditional setting the system worked very successful.
Successful, that is before the crash of 2007!!!!!!!!!
The core comment from yesterday’s hearing was what could be done to manage the foreclosure crisis??? Oh yeah, there have been programs after programs ginned up but unfortunately the results have been paltry at best. Part of the problem is traditional solutions are being offered for a non-traditional problem. Thus, you must get creative or think out of the box, otherwise you are doomed with the same failed results.
You would think it would be in everyone’s best interest to modify (make more affordable) and adjust the balance to more realistic home values!!!! Unfortunately, especially based on the letters from homeowners that is not the case, as based on the formula and relationship Investors have with Banks/Mortgage Companies, it is actually more “profitable” to have the property foreclosed.
I’m almost done……but here’s where it get’s interesting……..the calamity of foreclosure effects more than just the homeowner or the bank or the investor…….entire communities as decimated!!!!! So what’s the solution????? As much as the Senators were trying to get basic answers they simply could not get the malcontent CEO’s to understand what would help “Joe and Jane Public.”
Homeowners are scared enough and the foreclosure process is not for the weak or feeble. In addition to lots of threatening documentation received, homeowners and families are faced with the notion of LOSING THEIR HOME and having to move. Loan Modification’s appear to be a solid life raft, however this is where there is much confusion with the current process. Homeowners claim they are in contact with bank staff who acknowledge their loan modification is being processed, thus they feel all bets are off regarding foreclosure. False!!!, many have found themselves in great disruption as during the process of attempting to secure “a mod” they actually have received documentation informing them the foreclosure process has resulted in them LOSING THEIR HOME. What????? I thought you knew we were working on a resolution?????
BANKS PROCLAIM PART OF THEIR AGREEMENT WITH INVESTORS IS TO CONTINUE THE FORECLOSURE PROCESS, EVEN THOUGH A LOAN MODIFICATION MAY ALSO BE IN PROCESS. IT’S CALLED A TWO-TRACK SYSTEM.
The Senators and most advocates on behalf of homeowners simply wanted to know “if the two-track system could be ceased???” In other words, PRIOR to initiating ANY foreclosure process, Banks would have to exhaust ALL Loan Modification opportunities FIRST!!!! Makes sense to me. What about you???
Coincidently, I have written numerous articles and have contacted several politicians that a key remedy to our housing/foreclosure debacle is the adoption of The Mortgage Holiday, as in addition to arresting and managing the financial crisis we are experiencing, the side benefit is an economic stimulus as rather than sit by and watch the banks, Wall Street or others get taxpayer funds which result in little, if any economic benefit, homeowners, renters and more people would be direct participants.