Loan Mod Data Get Mixed Reviews

Data show much more needs to be done to assist borrowers in need of a loan modification.

Upon the release of the first Department of Treasury report about the implementation of the Making Home Affordable program launched in February, director of housing policy for the Consumer Federation of America, Washington, Barry Zigas expressed concern that, "many servicers have made hardly any progress at all in offering loan modifications to their customers." He highlighted data showing wide variations between servicers, with trial modification starts as a percentage of estimated eligible loans ranging from a high of 25% to 0% for some participating servicers.

The executive quoted Fannie and Freddie's regulator, Federal Housing Finance Agency director James Lockhart stating in a speech at the National Press Club that 108,000 of the total loans in trial modifications were owned or guaranteed by these GSEs. "Under the government's conservatorship, Fannie and Freddie have been at the leading edge of modification efforts and any progress helping their borrowers is good news," Mr. Zigas said. "But while they hold more than half of all outstanding mortgage debt, these loans account for only 22% of serious delinquencies. Private-label securities account for 13% of mortgage debt outstanding, but 42% of serious delinquencies. This crisis will not be solved unless the Making Home Affordable program can make serious inroads into these portfolios."

Mr. Zigas criticized the Treasury data saying it lacks important information details "that would give a more complete picture of how the program is really working."

The report estimates the percentage of eligible loans late 60 days or more that started trial loan modifications but it does not track how many borrowers who applied for a loan mod were declined, or for what reasons, he said. "The report shows that more than one million borrowers requested information under Making Home Affordable, but fewer than half were offered trial modifications. Until these reports provide a more granular level of detail they provide only a partial insight into how this program is working."

It states that out of roughly 2.7 million loans Treasury estimates are eligible for the program, only 15% (406,542) have been offered trial modifications and only 9% (235,247) have started them. But it does not include in the number of eligible loans those borrowers who are in imminent danger of default but not yet 60 or more days delinquent. In addition, he said, the report does not distinguish between loans owned or guaranteed by Freddie Mac and Fannie Mae and those being serviced on behalf of investors in loans held in private-label securities or of loans held in the lenders' own portfolios.

Recently industry experts attended a series of meetings organized by Treasury and the GSEs to discuss best practices and future strategies.

One of the attendees, Rich Rollins, CEO of National Quick Sale, Jacksonville, Fla., a provider of Web-based short sale management and workflow platforms, told this publication the meetings revealed the focus of the overall loss mitigation strategy may be shifting.

"So far the focus has been in home retention and retention strategies, and it has become apparent that those haven't been as successful as the Treasury has hoped," he said.

The new focus is on nonretention strategies of which a primary mechanism would be a short sale since short sales can be used to attract real estate investors who will lease back to the occupants and keep them in their homes, he explained.

"The issue with short sales is that there's no standardization of processes and electronically capture the data and the documents that are required in order to begin the analysis, or business rules that will help use the technology to grab all the needed information."

A technology expert, Mr. Rollins says another issue at the forefront is how to use existing technology to effectively gather, analyze and deliver loan information in an expedited fashion. "There is no uniform way of analyzing the data to see if a short sale may fit the borrower based on overall data valuation. A lot of technology will have to be employed, a lot of automation."

Mr. Rollins also noted that another issue of concern discussed during these meetings was how to use technology to expedite loan modification offers or counteroffers based on standardized processes using Treasury's guidelines. "What the Treasury would like to see is that a servicer responds to an offer within 10 days or less. To do that we all have to work together to use technology to compress the processing time."

"Many wheels" are in motion to address the current distressed borrower challenge, agrees Linda Simmons, general manager, mortgage finance, Overture Technologies Inc. Bethesda, Md., who also attended a recent industry meeting at Treasury.

Data show the success rate among traditional modifications is one in 10, compared to one in five for those using technology, she says, so taking advantage of new and existing tools is key to the overall success of the Obama plan.