BLOG VIEW: “We’re Moving” On MHA, Says Geithner

re's a certain, palpable excitement that accompanies this time of year. [/b]Of course, I'm referring to the post-March Madness, pre-May Sweeps period during which companies release their first-quarter earnings reports. This year's season was ushered in with greater anticipation than usual, with adjusted accounting practices, TARP handouts and the ever-present threat of bank nationalization adding spice. Unfortunately, with most of the biggies having already released their reports, and at least one buzz kill of a pragmatic observer adding in his well-respected [u][link=]two cents[/link][/u], it seems safe to say the frenzy is slowing. Luckily, the timing couldn't be better, as major lenders and servicers have recently started formally announcing their implementation of the administration's Making Home Affordable plan (MHA). The initial interest surrounding the program was extensive, and the megaservicers – per unwritten TARP protocol – immediately released statements praising the government's course of action. In the weeks that followed President Obama's unveiling of MHA, tech providers rushed to tweak their offerings and introduce the latest MHA-compatible products, but thenâ�¦ nothing. Nothing, that is, but confusion on the part of servicers and an onslaught of suggestions on where the plan falters. With the Treasury's list of participating servicers growing daily, that first aspect – servicer uncertainty – may be slowly vanishing. Although the list currently tops out at 11 (if you include Countrywide and B of A separately), Treasury Secretary Timothy Geithner said in testimony this week that the majority of servicers have signed on. "We're moving," he told Superintendent of Banks for the State of New York Richard Neiman, who questioned how the contracting process has been progressing. When it comes to the characteristic of MHA response – identifying areas of improvement – a particularly noteworthy assessment of government policy came from economists in the Federal Reserve System. In a [u][link=]paper[/link][/u] published recently on the Boston Fed's Web site, four authors dispelled the notion that bringing loans to an affordable debt-to-income ratio equates to a problem solved. The researchers emphasized that while unaffordable mortgages have certainly contributed to foreclosure numbers, the real killer is the double-trigger effect of negative equity and significant income losses. As an alternative, the economists propose that the government lend or grant borrowers money to help bridge a particularly trying one- or two-year period. For worse-off borrowers, the authors suggest that the government help financial institutions transition homeowners into renters. If the researchers are correct in their analysis (I admittedly didn't crunch any numbers in their Cox proportional hazard models for defaults and prepayments), then their proposed solutions seem valid, if not highly implausible in an environment in which any governmental pleas to distribute more "bailout money" will be cold-shouldered by an already ticked-off public. Fortunately, the Fed economists weren't the last to raise the question of how delinquent, underwater borrowers fit into the government's plan. During his aforementioned testimony before the Congressional Oversight Panel, Geithner was asked by panel Chair Elizabeth Warren about how the administration plans to address such borrowers (i.e., not the "relatively responsible" homeowners for which MHA was designed, according to Geithner). For that inquiry, the Treasury secretary pulled a relic from the Bush administration that, if enabled by Congress-enacted improvements, may still prove to have a spot in the loss mitigator's toolbox: FHA's Hope for Homeowners. An alternative, however, might be for the Treasury to revisit its loan modification guidelines and, specifically, its standard waterfall component. It seems to me that it won't be long before principal reductions become a mandatory, rather than simply encouraged, piece of the MHA program. – John Clapp, editor, [i][b]Servicing Management[/b][/i] [i](Please address all comments regarding this opinion column to


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