‘Hey, you there, modifying that loan! Don't waste your time. You know it's only going to redefault, right?’
While not the exact message delivered by Comptroller of the Currency John C. Dugan last week, this sentiment – that mod efforts are largely fruitless – seems to be what resonated most with the general public and mainstream media, if news reports are any indication.
Dugan, while speaking at the Office of Thrift Supervision's National Housing Forum, referenced OCC data showing that more than half of the loan modifications made in the first half of 2008 ended up in 30-day buckets in six months' time.
The OCC's conclusion that modifications generally don't stick rippled throughout the loss mitigation community and triggered a hearty dose of criticism against foreclosure prevention proposals that feature modification programs as their main component.
"The question is, why is the number of redefaults so high?" Dugan wondered aloud. Were modifications not deep enough for the mortgages to be considered affordable? Did consumers respond to lower payments by upping their spending elsewhere, thereby shifting their debt loads? Or were the mortgagor and mortgaged property just not meant to be? These are the questions Dugan bounced off the OTS forum's attendees.
While his comments may have turned a lot of skeptics into complete nonbelievers, legislation introduced by Rep. Maxine Waters of California indicates that some modification proponents have not been swayed.
Waters, chairwoman of the Subcommittee on Housing and Community Opportunity, said last week that she plans to take Sheila Bair's systematic modification approach and "give it the force of law" via the Systematic Foreclosure Prevention and Mortgage Modification Act of 2008.
"Unfortunately, while Secretary Paulson recently required Citigroup to implement the FDIC loan modification program as a condition for receiving TARP funds, he refuses to implement the plan nationwide," she says. "If my legislation is enacted, America's homeowners will finally receive the help they have been asking for."
Waters makes a good point. Why would Paulson mandate use of the FDIC's approach in the example of government-propped Citi, but resist its larger-scale implementation? With more high-visibility players like Ben Bernanke and Nancy Pelosi demonstrating a renewed sense of urgency as it relates to the foreclosure problem, how much longer until we see decisive action? The 20th of January, perhaps?
Bair, for her part, pointed out that OCC's report does not seem to include data on what types of modifications redefaulted. (And hasn't that lack of detail been a point of contention for a while now? It was only recently that HOPE NOW adjusted the way it collects mod information.)
Furthermore, it's important to note that the OCC report addresses modifications made in the first half of the year, long before the FDIC introduced the term "streamlined modification" into our vernacular.
Not everyone is seeing results comparable to the OCC's findings. Subprime servicer Ocwen announced last week that it's had success taking a loan-by-loan approach to modifications. The Florida-based company says 24.6% of loans were 60-days delinquent six months after being modified. The OCC, by comparison, found that 35% of its modified loans were in 60-day buckets six months later.
"I think everyone now recognizes that a bold loan modification program is what is required, and [it's] what is required right now," says Ocwen's executive vice president, Paul Koches.
