Post by psychecc on Aug 25, 2008 14:37:15 GMT -6
This is a really interesting article. According to the author, banks aren't willing to even reduce home values by 10% in order to renegotiate loans. They also are holding on to these foreclosures because if they sell them for a lot less than the "book value," they'll have to take write downs and risk other problems detailed below.
At this point, a bank taking big write downs might end up failing just due to lack of confidence, leading to a lower stock value, and then a run on the bank. What a mess. Link to full article follows.
Restructuring of mortgage loans gets tougher
by J. Craig Anderson - Aug. 24, 2008 12:00 AM
The Arizona Republic
In January, loan analyst Moe Bedard noticed a promising development in the mortgage-servicing industry: More lenders started restructuring distressed borrowers' loans to avert foreclosure.
But in the months that followed, the trend reversed itself.
"Now, it's even harder to get a modification than it was five months ago," said Bedard, president of Loan Safe Solutions, based in Coronado, Calif. "They're just stalling now."
The "they" to which he referred are loan-servicing units, the bank departments that negotiate with troubled borrowers seeking lower rates and monthly payments on their subprime mortgage loans.
The high cost of renegotiating adjustable-rate loans, overloaded servicing departments with too few staffers and concerns about bank failures and investor lawsuits have forced a stalemate between some customers on the brink of foreclosure and the loss-mitigation specialists tasked with keeping those borrowers' payments rolling in.
In some cases, borrowers don't even know which lender to call, because their loans have been sold and resold as investments or assets of a failed bank.
The much-debated federal housing bill passed in late July isn't likely to change much for distressed borrowers, Arizona experts said, because its Federal Housing Administration refinancing plan requires participating banks to reduce the principal amount of each subprime loan by at least 10 percent - something banks simply aren't willing to do....
Subprime strife
Bedard's consumer-counseling Web site, www.loansafe. org, reads like a collection of war dispatches from the subprime frontlines.
Its message boards contain story after story of struggling borrowers whose efforts to renegotiate their mortgage loans only led to frustration.
One site member from Arizona, writing under the name "dealingwithHomeEq," tells a typical story:
We called HomeEq two weeks ago and tried to talk to someone about a loan modification, but after being handed off to a number of agents, we were finally told that HomeEq has absolutely no incentive to talk to us because we were not even late yet. Our payment was due on Dec. 15, and we decided not to make it (the assumption that this was the only way to get their attention).
I think the service rep I talked to a few weeks ago was being candid when she said that she was in customer service (not collections) and had already talked to 69 people that day - I was only one in five who wasn't already behind by 90 to 120 days. I got the impression that loan-servicing companies like HomeEq are completely overwhelmed by the amount of people having trouble and are not equipped to deal with it.
Bedard said lenders should be hiring more agents to deal with the dramatic increase in calls for loan renegotiation, but Arizona Mortgage Lenders Association President-elect Jill Hoogendyk said the solution is not that simple.
Hoogendyk said many of the borrowers who call are emotional, making it difficult for loan-servicing agents to work out a reasonable compromise.
And if the agent is stern with them, he or she is perceived as not being helpful, she said.
"It's customer service to the max," said Hoogendyk, owner of HomePoint Mortgage Co. in Phoenix.
Because so many callers already have missed several payments, the ones who are hoping to renegotiate prior to becoming delinquent simply get placed at the back of the line.
"If someone is not yet late and is just trying to be proactive, it takes a long time," she said.
Valley real-estate analyst Jim Belfiore said he believes there is a connection between unbending lenders and the dozens of bank-owned vacant lots in the Phoenix area.
Avoiding write-downs
What's interesting about those foreclosed lots is that none have been placed back on the market for sale, Belfiore said, a sign that banks are reluctant to lower their value to reflect today's prices.
The appraised value of any mortgaged or bank-owned property is included in a bank's capitalization, the aggregate value of its assets. The sale of land or renegotiation of a loan asset triggers an adjustment in its "book value," which most banks want to avoid.
The Federal Deposit Insurance Corp., which insures deposits up to $100,000 in the event of a bank failure, requires banks to maintain a certain capitalization or face the possibility of being shut down.
A number of banks, including the former First National Bank of Arizona, have fallen below the mark recently and were ordered by the FDIC to cease operations.
Dozens of others are dangerously close to becoming critically undercapitalized, and writing down the value of too many foreclosed lots could nudge them below the line.
The same goes for foreclosed homes, which is why the federal housing bill's FHA-refinancing plan is "laughable," Belfiore said.
"They're not going to write it down to 90 percent of the value today," he said.
Bedard agreed, saying that writing down the value of all distressed mortgage loans would result in a $70 billion loss to banks' combined capitalization.
"It's the fear of major write-downs, but it's also the fear of investor lawsuits," he said.
However, Hoogendyk said such theories give banks far too much credit for being strategic at a time when the lending business is largely in disarray....
Whose loan?
Another obstacle for some borrowers seeking a reduction in their loan payments is figuring out who controls the loan.
Loan-servicing policies vary from bank to bank. For instance, Chase Home Finance recently completed a loan modification for one of Gilbert foreclosure-intervention specialist Tim Hensley's clients that nearly cut her monthly loan payments in half for the next four years.
In contrast, Bedard said Wachovia notified him earlier this month that it would not modify any more loans at all.
Most subprime mortgage loans were pooled into investor-funded securitization trusts, and the banks that service those loans have a responsibility to collect as much money as they can from borrowers to repay the investors.
But some of those banks are at the mercy of servicing agreements that don't allow them to make certain loan modifications, Bedard said, and many wouldn't know how to reach their investors if they wanted to.
Still, the most difficult loans to modify are those held by servicing companies, which sometimes assume responsibility for handling the securitized loans of a former bank that has gone out of business, Hoogendyk said. Those companies have even less incentive to renegotiate a troubled loan.
Hoogendyk said consumers should keep in mind that no servicing agent will modify a loan unless the existing payments are clearly unaffordable.
"You have to prove hardship," she said. "They're not going to modify your loan just because the rate is about to reset."
Borrowers also must have enough income to make payments on the renegotiated loan, she added. Despite all the challenges, Hoogendyk said, banks are still working with borrowers and in some cases preventing foreclosure.
Since opening its foreclosure-prevention hotline in May, the Arizona Department of Housing has received more than 2,700 calls from borrowers hoping to connect with a free counselor to help renegotiate their loans.
Deputy Director Karen Scates said the department has not yet tallied up the number of those callers who were able to keep their homes through renegotiation.
The Center for Responsible Lending, a national non-profit borrower-assistance group, has criticized the existing process for loan "workouts" and said there is no evidence that the modifications that banks are making to subprime loans will permanently prevent foreclosure.
The center is lobbying for a new system that is standardized and federally regulated or court-supervised....
www.azcentral.com/business/articles/2008/08/24/20080824biz-lenders0824-ON.html
At this point, a bank taking big write downs might end up failing just due to lack of confidence, leading to a lower stock value, and then a run on the bank. What a mess. Link to full article follows.
Restructuring of mortgage loans gets tougher
by J. Craig Anderson - Aug. 24, 2008 12:00 AM
The Arizona Republic
In January, loan analyst Moe Bedard noticed a promising development in the mortgage-servicing industry: More lenders started restructuring distressed borrowers' loans to avert foreclosure.
But in the months that followed, the trend reversed itself.
"Now, it's even harder to get a modification than it was five months ago," said Bedard, president of Loan Safe Solutions, based in Coronado, Calif. "They're just stalling now."
The "they" to which he referred are loan-servicing units, the bank departments that negotiate with troubled borrowers seeking lower rates and monthly payments on their subprime mortgage loans.
The high cost of renegotiating adjustable-rate loans, overloaded servicing departments with too few staffers and concerns about bank failures and investor lawsuits have forced a stalemate between some customers on the brink of foreclosure and the loss-mitigation specialists tasked with keeping those borrowers' payments rolling in.
In some cases, borrowers don't even know which lender to call, because their loans have been sold and resold as investments or assets of a failed bank.
The much-debated federal housing bill passed in late July isn't likely to change much for distressed borrowers, Arizona experts said, because its Federal Housing Administration refinancing plan requires participating banks to reduce the principal amount of each subprime loan by at least 10 percent - something banks simply aren't willing to do....
Subprime strife
Bedard's consumer-counseling Web site, www.loansafe. org, reads like a collection of war dispatches from the subprime frontlines.
Its message boards contain story after story of struggling borrowers whose efforts to renegotiate their mortgage loans only led to frustration.
One site member from Arizona, writing under the name "dealingwithHomeEq," tells a typical story:
We called HomeEq two weeks ago and tried to talk to someone about a loan modification, but after being handed off to a number of agents, we were finally told that HomeEq has absolutely no incentive to talk to us because we were not even late yet. Our payment was due on Dec. 15, and we decided not to make it (the assumption that this was the only way to get their attention).
I think the service rep I talked to a few weeks ago was being candid when she said that she was in customer service (not collections) and had already talked to 69 people that day - I was only one in five who wasn't already behind by 90 to 120 days. I got the impression that loan-servicing companies like HomeEq are completely overwhelmed by the amount of people having trouble and are not equipped to deal with it.
Bedard said lenders should be hiring more agents to deal with the dramatic increase in calls for loan renegotiation, but Arizona Mortgage Lenders Association President-elect Jill Hoogendyk said the solution is not that simple.
Hoogendyk said many of the borrowers who call are emotional, making it difficult for loan-servicing agents to work out a reasonable compromise.
And if the agent is stern with them, he or she is perceived as not being helpful, she said.
"It's customer service to the max," said Hoogendyk, owner of HomePoint Mortgage Co. in Phoenix.
Because so many callers already have missed several payments, the ones who are hoping to renegotiate prior to becoming delinquent simply get placed at the back of the line.
"If someone is not yet late and is just trying to be proactive, it takes a long time," she said.
Valley real-estate analyst Jim Belfiore said he believes there is a connection between unbending lenders and the dozens of bank-owned vacant lots in the Phoenix area.
Avoiding write-downs
What's interesting about those foreclosed lots is that none have been placed back on the market for sale, Belfiore said, a sign that banks are reluctant to lower their value to reflect today's prices.
The appraised value of any mortgaged or bank-owned property is included in a bank's capitalization, the aggregate value of its assets. The sale of land or renegotiation of a loan asset triggers an adjustment in its "book value," which most banks want to avoid.
The Federal Deposit Insurance Corp., which insures deposits up to $100,000 in the event of a bank failure, requires banks to maintain a certain capitalization or face the possibility of being shut down.
A number of banks, including the former First National Bank of Arizona, have fallen below the mark recently and were ordered by the FDIC to cease operations.
Dozens of others are dangerously close to becoming critically undercapitalized, and writing down the value of too many foreclosed lots could nudge them below the line.
The same goes for foreclosed homes, which is why the federal housing bill's FHA-refinancing plan is "laughable," Belfiore said.
"They're not going to write it down to 90 percent of the value today," he said.
Bedard agreed, saying that writing down the value of all distressed mortgage loans would result in a $70 billion loss to banks' combined capitalization.
"It's the fear of major write-downs, but it's also the fear of investor lawsuits," he said.
However, Hoogendyk said such theories give banks far too much credit for being strategic at a time when the lending business is largely in disarray....
Whose loan?
Another obstacle for some borrowers seeking a reduction in their loan payments is figuring out who controls the loan.
Loan-servicing policies vary from bank to bank. For instance, Chase Home Finance recently completed a loan modification for one of Gilbert foreclosure-intervention specialist Tim Hensley's clients that nearly cut her monthly loan payments in half for the next four years.
In contrast, Bedard said Wachovia notified him earlier this month that it would not modify any more loans at all.
Most subprime mortgage loans were pooled into investor-funded securitization trusts, and the banks that service those loans have a responsibility to collect as much money as they can from borrowers to repay the investors.
But some of those banks are at the mercy of servicing agreements that don't allow them to make certain loan modifications, Bedard said, and many wouldn't know how to reach their investors if they wanted to.
Still, the most difficult loans to modify are those held by servicing companies, which sometimes assume responsibility for handling the securitized loans of a former bank that has gone out of business, Hoogendyk said. Those companies have even less incentive to renegotiate a troubled loan.
Hoogendyk said consumers should keep in mind that no servicing agent will modify a loan unless the existing payments are clearly unaffordable.
"You have to prove hardship," she said. "They're not going to modify your loan just because the rate is about to reset."
Borrowers also must have enough income to make payments on the renegotiated loan, she added. Despite all the challenges, Hoogendyk said, banks are still working with borrowers and in some cases preventing foreclosure.
Since opening its foreclosure-prevention hotline in May, the Arizona Department of Housing has received more than 2,700 calls from borrowers hoping to connect with a free counselor to help renegotiate their loans.
Deputy Director Karen Scates said the department has not yet tallied up the number of those callers who were able to keep their homes through renegotiation.
The Center for Responsible Lending, a national non-profit borrower-assistance group, has criticized the existing process for loan "workouts" and said there is no evidence that the modifications that banks are making to subprime loans will permanently prevent foreclosure.
The center is lobbying for a new system that is standardized and federally regulated or court-supervised....
www.azcentral.com/business/articles/2008/08/24/20080824biz-lenders0824-ON.html