Having a staffer on the House Committee on Financial Services for a best friend and growing up here in our nation’s capital it’s almost impossible for us to avoid long conversations about financial recovery, the foreclosure crisis, and the steps that various legislators and government organizations are or should be taking to help homeowners. I enjoy our conversations and it’s always great to get the inside scoop on what’s happening in Washington from a good friend.
The work day’s ended, and we’re sitting down for a Guinness at 18th St. Lounge talking shop; new appraisal guidelines, the pros and cons of the Nationwide Mortgage Licensing System (NLMS), the movie The Hangover (I loved it he hated it), and of course, HAMP – the loan modification side of Obama’s Making Home Affordable Program – and the disturbing number of homeowners that have been placed in Trial Modifications only to never receive a Permanent Loan Modification.
From an outsider’s perspective it’s very difficult to grasp exactly what is going on at the major servicers, and why the majority of homeowners aren’t being placed in permanent modifications. Let’s take Bank of America for example; as far as I recall last month, B of A had 43,000 homeowners in Trial Loan Modifications, yet has only approved 98 for Permanent Modifications?
Are Bank of America and the other major servicers not committed to helping homeowners? Are their loss mitigation departments simply too swamped? Are banks truly just putting homeowners into Trial Modifications to get a couple of payments from them prior to foreclosure? Here’s where talking with my buddy helps to understand what exactly is going on:
There has been a gargantuan amount of pressure on lenders to put more homeowners into Trial Loan Modifications coming from pretty much all sides; in addition to pressure from HUD and the Treasury Department on lenders to modify more mortgages, recently, President Obama called the CEO’s of most of the major lenders to the White House to explain why more hasn’t been done to help struggling homeowners. I can’t even begin to imagine how stressful that was for Ken Lewis.
As such, lenders are placing homeowners into Trial Loan Modifications just as quickly as they can to appease Washington. Here’s the problem – rolling over from a Trial Modification to a Permanent Modification is not just contingent on the homeowner making three consecutive affordable payments on time. The big hold up is the fact that lenders have the option to perform a NPV (Net-Present-Value) test to determine whether it is fiscally in their best interest to modify the loan, weighing the cost of foreclosure versus the cost of modifying the mortgage, factoring in the likelihood the homeowner will re-default.
Here’s the insider information you’ve been looking for: the exact process your lender is using when performing the NPV test can be found here. Additionally, a NPV Worksheet was created for FDIC’s Mod-in-a-Box Program, which can be found here: http://www.fdic.gov/consumers/loans/loanmod/loanmodguide.html. Merely enter the pertinent information and viola you’ve performed an NPV test!
If financially it doesn’t make sense for the lenders to modify the mortgages in question, no amount of hemming and hawing in Washington will force them to set themselves up for a larger loss than merely foreclosing. So for right now the only sure-fire way for a homeowner to know that they will get a permanent loan modification under HAMP is for the homeowner to perform a NPV test on their own? When lenders are unwilling to disclose crucial factors for the test, such as what percentage the lender is using to account for re-default rate?
Rather than blathering on about how I think lenders or Washington can solve the problem of getting more homeowners into Permanent Mods, I’d rather hear your opinions! Comment freely and let’s get some plausible solutions together that we can suggest a solution (no, not in a crazy NACA way but through proper channels). Maybe it’s time to put together a lobbyist group; as I understand Washington is getting a lot of calls from irritated homeowners.
Photo Credit: Pete Souza – Whitehouse
Source: zillow.com