In a meeting held yesterday,
the feds pushed to get “pledges” from 25 mortgage companies to streamline their
loan modification process. The goal is to get 500,000 loan modifications done
by Nov. 1st. A lofty goal
considering there are only 200,000 modifications currently in process, and Nov.
1st is right around the corner.
While this sounds good,
500,000 loan modifications is a drop in the bucket. Past attempts at loan
modifications have proven to be mostly failures. The majority of loan
modifications end up in default within 6 months after modification. Most loan
companies modify the payments on loans by extending the term and lowering
interest rates. While this provides short term “relief”, to me the bigger issue
is the loan amount. The reality is people do not want to fight to pay payments
on a house that is 30-40-50-60,000 or more upside down. If loan companies do more to reduce loan
amounts, I believe the long term success would increase significantly.
Full story below.
The Obama administration wishes to see at least 500,000 loan
modifications by November 1 of this year; currently about 200,000 loan
modifications are in process. Administration officials held discussions this
week with 25 loan servicers participating in the modification program and asked
them to do expedite the program. Borrowers have been complaining about
administrative delays in processing their loan modification application.
"[T]oo many homeowners are at risk of foreclosure right now,"
Treasury Secretary Tim Geithner said in a statement after the meeting.
"Today's meeting was an opportunity to identify ways to accelerate the
program and bring relief faster." President Obama has acknowledged that
the modification program, which was announced in February this year, has so far
not been effective. "Our mortgage program has actually helped to modify
mortgages for a lot of our people, but it hasn't been keeping pace with all the
foreclosures that are taking place," Obama said l
ast month.
Servicers who participated in the meeting made a
number of suggestions on streamlining the paperwork and creating a website to
enable borrowers to make applications online. Sanjiv Das, chief executive of
CitiMortgage, said: "Today's meeting was an important step toward the
administration's and our shared objective of improving the effectiveness and
efficiency of the Make Home Affordable mortgage modification program."
Mortgage-backed bonds worth $3 billion in TALF
pipeline
The Obama administration introduced the Term
Asset-Backed Securities Loan Facility (TALF) last March in order to revive
asset-backed securities market. The next TALF window which will open in
September this year is likely to see deals worth $3 billion involving
Commercial Mortgage Backed Securities (CMBS). More than a dozen real estate
investment trusts are expected to participate. The Federal Reserve is likely to
lend CMBS buyers up to 85% of the purchase price for TALF securities.
"If the first deals are successful, we think
we can get $10 to $25 billion done in the next six months," said Kenneth
Rosen, who manages a hedge fund. The program accepts securities that have the
highest rating, and borrowings under the program must be repaid within 5 years.
Analysts are divided on the extent to which the program will revive the CMBS
market which collapsed in 2008 due to credit crisis. David Twardock, president
of Prudential Mortgage Capital, said TALF will help revive the CMBS market
"in a very modest way." TALF is set to expire by the end of 2009 and
some analysts are seeking an extension of the program.
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