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The Progress on Loan Modifications Isn’t Quite What It Seems

The Treasury Department’s report on the progress — or lack of it — among servicers doing loan modifications makes it seem like the Obama administration is keeping a close eye on its Making Home Affordable Program. But Felix Salmon at Reuters takes a second look at Treasury report, and raises some important questions. Salmon notes that the purpose of the report is “to document the number of struggling homeowners already helped under the program, provide information on servicer performance and expand transparency around the initiative.” Treasury officials told The Wall Street Journal they were encouraged by the program’s early results, even though only about 9 percent of eligible borrowers have received trial loan modifications so far.

The bigger problem, Salmon writes, is that the Treasury’s report “seems to have more spin than transparency.” How so? Well, the graph accompanying the report refers to “cumulative” progress made on loan modifications. And that’s just not helpful, he explains.

Consider this graph:

Image has not been found. URL: http://blogs.reuters.com/felix-salmon/files/2009/08/hamp.jpg

Yay! It’s up and to the right! Things must be great, no? Except there’s that annoying word “cumulative”. Cumulative graphs are generally misleading: they can only ever go up, and can’t ever go down. In order to judge this graph, you really have to look very closely at the gradient, to see whether the rate of modification trials is increasing at all. And it seems that it isn’t.

What’s more, you’ll look in vain, in this report, for any indication of how the rate of new modifications compares to the rate of new foreclosures. That’s the key thing to look at: if the rate of foreclosures starts to fall, we might be getting somewhere. But that rate isn’t mentioned in the report.

Yes, the report does single out some servicers, such as Wachovia Mortgage, for their very low modification rates. But overall it seems to be determined to paint a rosy picture of the HMA scheme, rather than objectively reporting on whether it’s working or not.

In the meantime, the folks at the nonprofit advocacy group ACORN give Treasury its due for trying to single out servicers that aren’t doing their share. But Acorn doesn’t think that’s enough, Housing Wire reports.

The Association of Community Organizations for Reform Now (ACORN), in response to the Treasury announcement, calls for a full stop to foreclosure on any HAMP-eligible property, whether the borrower is committed or not. Additionally, ACORN wants servicers to explore alternative methods of aiding ailing borrowers, for example by principal forgiveness as opposed to forbearance. Furthermore, servicers are unevenly applying the program, they say, with little adherence to regulatory hurdles, such as in the inappropriate levying of modification fees onto the borrower.

“There is a great incentive [for servicers] to take part,” says Brenda Muniz, legislative director at ACORN National. “Yet there are no consequences if [HAMP] is violated.”

There obviously are a lot of details to argue over here, both in Treasury’s report and in the loan modification effort itself. But Salmon makes the key point. What really matters is whether foreclosures are slowing down. They are not. Until that unfortunate reality changes, the loan modification initiative can’t be considered any kind of success, no matter how skillfully the data gets presented.

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