Tuesday, December 8, 2009

The insanity of government micromanaging

So back in July the Treasury brings all the servicers together to discuss why there aren't enough trial mods being made. Many of the servicers report that they don't want to give a trial mod that doesn't have a reasonable chance of success so they ask for documents first. The administration had promised 500,000 trial mods by the end of the year and would miss on that promise if that happened so they harangued the servicers into not asking for documentation before commencing a trial mod. So now we have over 600,000 trial mods in process yet few of them are going into full modification because unsurprisingly many don't qualify or return their paperwork.

The result?
He also told me that Treasury is now considering upping the ante on the trial modifications, requiring much more documentation up front, so that banks won't have all these trial mods going with borrowers who inevitably won't reach permanent modification status.

You can't make this stuff up.

On the documentation front I think there are legitimate borrowers gripes about lost paperwork. Most servicers I heard use faxing and there is no automated way of associating the paperwork with the account in question (well, there is but none of the servicers are smart enough to implement it). Why not have document upload in their online banking account? It is a trivial technical exercise and solves the paperwork getting lost issue. If people don't have scanners to get the documents in electronic format then all the servicers with banking arms could have a scanner and computer available at each branch and solve that issue very quickly (many community groups would jump at the chance as well). The system is literally not built for the mod effort and since it is temporary not a lot is being done to invest in the infrastructure to make it run smoothly. So on that front some borrowers have a point but I think they are the minority.


Sean said...

"You cannot make this stuff up."

So true, so sad. Ad hoc policy zigzags driven entirely by politics.

While I believe any large company can easily lose stuff, I have to call BS on anyone who suggests that compiling documentation necessary to underwrite a loan is any kind of challenge. It is done with full doc loan origination and refis every day by thousands and thousands of people, and it shouldn't take more than 5 days - not 3 or 5 months. The real problem is that most people are LYING to try to get a mod so the documentation to back up the lies does not exist.

Get rid of "trial mods" and require full docs within 60 days to establish eligibility with a 30 day limit on banks to approve or deny the mod, and consent by the borrower to minimum notice of trustee sale or foreclosure auction if they default on the modified payment.

What do you think the chances of THAT are now that little Timmy has given Barney Frank a $500 billion blank check for the next year.

Effective Demand said...


The servicing side isn't setup like the origination side so that is part of the paperwork issue. A loan mod is basically an origination but it isn't being handled like that at all.

Rob Dawg said...

Funny that they never make an error in the borrowers favor.

Anonymous said...

It's enough for the government to make it appear they are doing enough. That's all it takes to guide the sheep of this country.

The Iraq war was the perfect testing ground to see how much bullshit the government can shovel down people's throats without anyone raising his/her hand and ask the simple question of "Are you guys telling us the truth?"

Instead, if it appears like the job is being done, that's all people care about.

The irony of it all, even though this may not relate directly to real estate, is that this country was founded (supposedly) on independent thinking and what not. Now we are a brainless, senseless herd of sheep that will believe anything we are told.

The amount of lying and disinformation in the housing industry and market is out of this world. So many people made so much money of the housing money laundering scheme that any attempt to get to the root of the problem is immediately shot down and silenced.

So it's no surprise the government wants to continue the illusion of "things are happening" in the housing market.

And it works...just look at prices of homes in LA...they are resisting declines like a cat stuck on a tree trunk about to fall.

I was looking at Redfin the other day...and STILL there are pathetically overpriced homes in LA all over....Pasadena for one...1300 sqft townhome, brand new...for $650K???? With a $400 HOA?

I'm sorry..wtf are these morons smoking?