The same day Treasury Secretary Henry Paulson publicly announced his plan to pressure loan servicers to engage in mass modifications of subprime mortgage loans, critics quoted by The New York Times let fly with well-aimed brickbats.
The Bush administration’s effort to help borrowers in danger of defaulting on their subprime mortgages could help only a small number of those who took out such loans, industry analysts said Monday.
Though administration officials have yet to agree on crucial details with mortgage lenders and the securities industry, a similar effort in California is likely to help about 12 percent of borrowers in the state with adjustable-rate subprime loans, according to estimates by Barclays Capital.
About two million people have subprime mortgages with monthly payments that are likely to jump sharply in the next year or so as their introductory teaser rates expire.
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“There is no cookie-cutter approach that can be taken to this,” said Bert Ely, a longtime banking consultant in Alexandria, Va. “This is going to be a mess.”
Ya think, Bert?
To qualify for help, Mr. Paulson said, borrowers would have to be current on their payments and would have to be able to keep making payments at the introductory rates. Borrowers would not qualify if they were able to either manage the higher payments or refinance with a cheaper mortgage.
Under the approach Mr. Paulson outlined, deciding who would qualify for a loan modification would require a close assessment of each borrower asking for help. The easiest issue to determine would be whether a borrower has stayed current on monthly payments. The loan-servicing company would then have to estimate how much the payments were likely to increase once the teaser rate expired.
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To decide whether a person qualifies for an extension of the teaser rate, a lender or a loan-servicing company would have to analyze the borrower’s monthly income and expenses to determine if he or she could realistically make the higher payments.
“The risk is that you could be modifying loans for people who don’t need it,” said Sharon Greenberg, director of mortgage strategy at Barclays. “There’s only so much you can do without talking to the borrower.”
As a result, Ms. Greenberg said, loan-servicing companies would have little choice but to look at the details of a person’s monthly expenses, down to items as specific as cable television and grocery bills.
Ya think, Sharon?
Sharon, I hear that Sheila Bair is going to scratch your eyes out for talking smack about her "one-size-fits-all" loan modification scheme (a cat fight I'd like to see, actually), so I'd hide out for awhile. Try Bert Ely's house. I hear he has a .50 cal. machine gun mounted on a swivel turret on his roof (as Bert always says, "When the going gets tough, the tough go cyclic."), plus two Rottweilers named Eva and Adolph who've been trained to attack first and slobber questions later.
She [Ms. Greenberg] predicted that the California loan-modification program, supported by Gov. Arnold Schwarzenegger, would lead to very little change from what big mortgage lenders were already doing.
Of course, now that the Governator has held a press conference announcing that he's done something, the fact whether he's actually done anything becomes irrelevant.
Mr. Paulson emphasized that the new plan would not entail spending tax money. He also made it clear that the Treasury Department was pushing mortgage lenders and the investment funds to act decisively.
“We are leading the industry to develop a systemic means of efficiently moving able borrowers into sustainable mortgages,” he told the housing forum. He strongly suggested that he expected all mortgage-servicing companies to support the new standard for modifying loans.
“I hear the tone of a mandate,” Mr. Ely said. “It’s government-mandated collusion.”
Ya, think, Bert?
It remains unclear how tough the implied mandate will be, and administration officials have not even hinted at consequences for companies that do not go along.
"Implied mandate." There's a term for the ages.
We understand that the consequences of noncompliance will be that the offender will be strapped to a chair with his or her eyelids tapped open and forced to listen to three days of debate between Ron Paul and Dennis Kucinich, on the question "UFOs: Are They Here To Destroy Us Or Merely Screw With Our Minds?" Following that, the offenders will be finished off with an hour of non-stop denials from Jennifer Lopez that she's pregnant. The gibbering survivors will then be sent to work as risk management and compliance field examiners for the FDIC.
