• News
  • Celebrities
  • Finance
  • Crypto
  • Travel
  • Entertainment
  • Health
  • Others

Mortgage Workouts Not Solution

Image has not been found. URL: /wp-content/uploads/2008/09/foreclosurecrop1.jpg

When the foreclosure crisis began to heat up last fall, troubled borrowers got this advice: Call your lender and try to work things out. The Bush administration led the way on this, unveiling its Hope Now program — a hotline to connect borrowers with mortgage counselors and servicers to re-do loans on easier terms.

President George W. Bush and Treasury Secretary Henry M. Paulson Jr. touted the approach as a private sector-led effort to help homeowners who were falling behind on their payments. Hotlines and efforts like Hope Now sprung up at the state level as well.

But since its inception, Hope Now has run into trouble — criticized for serving too few people with too little results. Borrowers complained they couldn’t get through to counselors or servicers, and Bush didn’t help the situation by giving out the wrong hotline number at a news conference. Servicers seemed reluctant to modify large numbers of loans, and most recently, counselors say, some are agreeing only to two or three-year repayment plans, instead of restructuring the loans into 30-year, fixed-rate mortgages.


Illustration by: Matt Mahurin

Hope Now, in the meantime, regularly issues optimistic progress reports as foreclosures continue to soar — filings rose by 55 percent in July, compared to a year earlier — and the housing market shows no signs of stabilizing.

At this point, both industry experts and housing counselors are questioning whether voluntary workouts are a useful solution to the housing crisis — and whether there’s any solution at all. It’s time to acknowledge that workouts are a band-aid effort at best, they say, a way for government and the lending industry to show they are doing something about the crisis, without actually doing much.

Workouts don’t work, in this view, both because borrowers are reluctant to seek help from lenders, refusing to open mail from them for fear it’s a foreclosure notice, and because servicers who negotiate workouts have little financial incentive or staff to help significant numbers of them anyway.

The problems with loan restructurings aren’t just about a fight between borrowers and lenders. The failure to secure a large volume of restructurings speaks directly to the entrenched, structural problems in the mortgage market that prevent simple or quick cures for foreclosures.

Servicers earn money by collecting fees, not from setting up restructurings. This gives them little reason to do more of them. Borrowers and lenders are at odds in the process, a roadblock to getting anything done. Hope Now, for example, counts among its members the American Securitization Forum, which represents financial companies that buy and sell mortgage securities, and which tells counselors to avoid across-the-board restructurings.

Hope Now is promoted by the government, but run by private industry, and lenders and servicers vary in their restructuring decisions. Some are big enough to absorb foreclosure losses and move on, giving them little impetus to accept restructurings. Smaller lenders, or those looking to buy a little time in the hopes the market will pick up again soon, are motivated to agree to only two-or-three year agreements — and then go after the property again if home values rise.

In the meantime, the government is pinning its latest hopes on the mortgage rescue bill that goes into effect next month, hoping lenders will voluntarily agree to take losses and refinance loans backed by Federal Housing Administration insurance — something they could have been doing all along, even without the new legislation.

“Why aren’t there more loan modifications? Because lenders are reluctant to do them, except as a last resort,” said Guy Cecala, publisher of Inside Mortgage Finance, a Bethesda, Md., publication that follows the industry. “Hope Now is something the government had to do to show it was doing something about the crisis. I think they’re hanging on to it as a public-relations gesture. It’s as much about p.r. as it is about having an impact on the problem.”

Consider how loan modifications are reported. Hope Now announced recently that it prevented a record number of foreclosures in July, completing more than 192,000 workouts. But the group doesn’t break down details of the modifications. So it’s unclear how many were restructured loans at lower rates and how many involved repayment plans that just stretched payments out over a longer period of time.

By contrast, in a new research paper, Alan White, a University of Valparaiso law professor and mortgage-industry expert, examined 4,300 loan modifications in subprime loan pools from July 2007 through June 2008. The workouts were completed by Hope Now and by other groups.

White found that virtually none of the modifications resulted in a reduction of the loan principal, and only about half reduced the interest rate and monthly payment.

Hope Now is under “a hell of a lot of pressure” from both the Bush administration and from Democrats like Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, to come up with results, Cecala said. But lenders don’t see things the same way, and instead believe that loan modifications are likely to fail in the end, making them not worth the effort.

“Don’t think for a minute that anyone in the mortgage industry, or anyone who knows anything about this, thinks workouts are some sort of panacea,” Cecala explained. “The feeling in the mortgage industry is that there’s no silver bullet and there’s no easy way to address this crisis. They’re just going to have to muddle through it somehow.”

Discussion & Comments (0)

    Recent Articles

    • Things You Should Know about North America

      Things You Should Know about North America

      Get to know more about North America.

    • Eurovision 2010 Paula Seling Unpredictable Contest

      Eurovision 2010 Paula Seling Unpredictable Contest

      Paula Seling's experience on the Eurovision stage led her to declare that "Eurovision is an unpredictable contest". Which may explain the success of the young Lena from Germany, about whom the predictions before the event did not offer much chances for victory.

    • VIPRow.me - The Best Sports Streaming Website Today

      VIPRow.me - The Best Sports Streaming Website Today

      Have you ever contemplated creating a user-friendly site dedicated to sports-related free live streaming channels?

    • Learn How To Download, Install, And Use The Xnxubd 2022 Frame App

      Learn How To Download, Install, And Use The Xnxubd 2022 Frame App

      XNXUBD 2022 Nvidia users are able to watch thousands of videos and other contents online. XNXUBD 2022 Nvidia New is a piece of software that enables people to watch videos online without having to pay for memberships. On a graphics card, the XNXubd also provides some of the best gaming and virtual reality experiences.

    • Xvideostudio Video Editor Apk Free Download For Pc Full Version In 2022

      Xvideostudio Video Editor Apk Free Download For Pc Full Version In 2022

      A new edition of the Video Editor Apk for xVideostudio.Video Studio has all the latest features, including support for multiple video download formats in HD, FHD, and even 4K resolutions.

    • 9 Best Lotion For Masturbation - Popular Choice For 2022

      9 Best Lotion For Masturbation - Popular Choice For 2022

      Masturbation is a common activity for men and women. It's a natural and risk-free way to explore your body, experience pleasure, and release sexual tension.

    • Reasons Why You Need To Stop Watching Movies From Sflix

      Reasons Why You Need To Stop Watching Movies From Sflix

      Without having to sign up or pay anything, you can watch movies online for free with SFlix. It has more than 10,000 movies and television shows.

    • Coi Leray Mom And Dad's Family History & Wife, Explained

      Coi Leray Mom And Dad's Family History & Wife, Explained

      Coi Leray Collins (born May 11, 1997) is a rapper from the United States. Leray started publishing songs to SoundCloud in 2014, and in 2018 she released her breakthrough track "Huddy" as well as her first mixtape, Everythingcoz.

    • Listen And Download Music On MyFreeMP3 For Free

      Listen And Download Music On MyFreeMP3 For Free

      Are you in a bind and looking for a place to obtain free mp3 songs? Never again will you need to bother, since this article has everything necessary to obtain your solution. Download free music from MyfreeMP3.com, one of the world's most popular websites.