Whip Foreclosures Now
Public scolding, as the Treasury Department planned to start doing to its loan modification plan servicers last month, at first blush seems like a very unpromising strategy. Jawboning rarely makes a big dent in tough public policy issues. Remember the Ford administration's campaign to Whip Inflation Now through "WIN" buttons?
But on second glance, extra accountability may help solve what is a genuinely knotty problem - how to keep millions of stressed borrowers off already-swollen foreclosure rolls.
Servicers in Treasury's HAMP now are being told to report twice-daily on the progress of their modification efforts. That's an unwelcome addition to what already is an unruly combination of loan mods and foreclosures to deal with.
Treasury says that beyond the public postings of HAMP performance it reserves the right to take unspecified sanctions and penalties against the servicers, outing them for poor performance.
The background for all this is that while HAMP servicers have managed to start some 750,000 trial modifications, hardly any "real" modifications have gotten under way, perhaps 5% of trials.
Our sympathies go to servicers that have to chase borrowers for documentation and then hope that they will pass their trials by making three monthly payments. Added up into the millions this seems like a hopeless job.
Still, these loan mods (and refinancings for those qualified) must be done before the mortgage market can reset and advance from the aftermath of the market collapse of 2007. Then those currently in serious delinquency can be moved through the system.
Still, the government has managed to make a dent on hopeless problems before. The savings and loan bust transferred hundreds of billions of dollars of suspect assets to government rolls. Few thought the government would do a good job of disposing of them.
But the Resolution Trust Corp. did a credible job, over a five-year timeframe, of packaging and disposing of these assets.
So, maybe millions of loan modifications can be helped a long by a little jawboning.