Foreclosure Buzz

Update: January 14, 2009 – more evidence the Alliance numbers are bad.  See here. —–Original post—–

In late 2007, well after the subprime lending bubble burst and the foreclosure crisis created a worldwide credit crunch, President Bush, Treasury Secretary Paulson and HUD Secretary Jackson starting meeting with a bunch of of folks in the mortgage lending industry that created the mess. (See White House Press Release here, other sources here, and here. )  Rather than call themselves “the mortgage lending industry”, the spin doctors in the government and industry thought to call the group the Hope Now Alliance.  Of course some realized it would sound better if their Alliance included some counseling agencies, otherwise it would only be industry.

Hope Now is an alliance between counselors, servicers, investors, and other mortgage market participants.

Hope Now website here.

While their website lists the counseling agencies first some of which are decent folks (see entire list here), some of these are merely entities that have received federal money to do counseling (more on that later).  These counseling agencies are not the players.  The players are farther down the page.  Here is a sampling:

Bank of America, Chase, Citigroup, Inc., Countrywide Financial Corporation, EMC Mortgage Corporation, Fannie Mae, Freddie Mac, GMAC ResCap, Home Loan Services, Inc. (d/b/a First Franklin Loan Services & NationPoint Loan Services), HomEq Servicing, HSBC Finance, Indymac Bank, LandAmerica Financial Group, Inc./LoanCare Servicing Center, Litton Loan Servicing, MERS, Ocwen Loan Servicing, LLC., Option One Mortgage Corporation, Select Portfolio Servicing, Inc., Washington Mutual, Inc., Wells Fargo & Company

So what?  Well, the Alliance does not just sit around and come up with voluntary guidelines on how borrowers should be treated (e.g., Hope Now Alliance Mortgage Servicing Guidelines here, and from what can be gathered, the industry dictated the terms of these guidelines.  It is not clear how the Alliance takes a position on anything.  There does not appear to be a board or bylaws, only staff.) 

The Alliance, and its industry members, also started, fund, and run something called the Homeownership Preservation Foundation (see funding partners here) which in turn set up the “Hope Hotline” that has been pushed throughout the nation even by President Bush himself (radio address here) allegedly to assist troubled borrowers.  (To learn more about how the Homeownership Preservation Foundation is an industry front click here.)  The Alliance attempts to meld itself (Hope Now Alliance) with the “Hope Hotline” operated by the Foundation. 

Both the Alliance and the Foundation certainly work together to get their underlying message out — the mortgage industry is not responsible, but doing all they can to address the problems created by borrowers.  See example press release here.  It appears the main goal of the Alliance is propaganda production on how well the mortgage industry is doing.  Rather than use associations or industry members the public or the media would recognize as biased, the Alliance does it.  Here is a listing of their media releases here.  Let’s take a look at the latest release and let an expert provide her opinion regarding the data.   Ms. April Charney is a staff attorney with Jacksonville Area Legal Aid, and member of the National Association of Consumer Advocates.  She reviewed this latest release and had a variety of questions and reactions to it.

Hope Now Alliance June 2008 Data Release here which is quoted in parts below followed by Ms. Charney’s reactions:

Hope Now Alliance claims: In June 2008, mortgage servicers completed more than 181,000 mortgage workouts for home loans that otherwise would have gone into foreclosure. In the second quarter of 2008, mortgage servicers completed more than 522,000 workouts.

Response of Ms. Charney:  According to Hope Now’s definitions, a workout is a repayment plan plus a modification.  And according to Hope Now, a repayment plan is one that allows the borrower to become current and catch up on missed payments that are appropriate to the borrower’s circumstances and involves deferring or rescheduling payments while the full amount of the loan is expected ultimately to be paid and within the original contractual maturity of the loan.  Hope Now defines a modification as involving a permanent change in a material term of the original loan and can involve a reduction in the interest rate, forgiveness of a part of the alleged principal balance or an extension of the maturity date of the loan. This doesn’t compute because a loan modification, by definition, excludes a repayment plan (no material loan term changes) but according to Hope Now a workout would include both a repayment plan (no material changes) AND a modification.  

So Hope Now could be reporting 522,000 “workouts” that are all really just repayment plans involving no material changes in the terms of the loans and thus just more borrowing of time…and misery and a chance to make [money] from default servicing and to prevent the discovery of more fraud in origination and sale/transfer of these loans. 

Hope Now Alliance claims: Hope Now has already reached out to millions of homeowners through mailings, local events, and the Hope Hotline and is enabling homeowners to find solutions that will allow them to stay in their homes.

Response of Ms. Charney: I am underwhelmed by the lack of transparency of these so-called deals and I can’t find a shred of evidence to support Hope Now Alliance’s claim that it is “enabling homeowners to find solutions that will allow them to stay in their homes.”

Hope Now Alliance claims: The total number of foreclosures prevented by mortgage servicers since July 2007 has risen to approximately 1.9 million.

Response of Ms. Charney: Hope Now fails to break down this data to even statewide numbers. Nothing but totals.  Hope Now could be making this statement based on the new trend nationwide of the foreclosure sales not being set or being cancelled over and over; of the foreclosure cases being abandoned; of the refusal of the “lenders” to take back surrendered properties in bankruptcies. At least that makes sense and such information can be documented around the country independently in foreclosure and bankruptcy filings.  Lately I see foreclosures being filed, service being performed and then nothing; no defaults, no motions for summary judgment, nothing.

Hope Now Alliance claims: More than 57,000 of [from a sample of 928,000 subprime adjustable loans scheduled to reset between Jan-June 2008] have already been modified. Nearly 72 percent of these modifications are for 5 years or longer.

Response of Ms. Charney: My take away from that piece of data is that 57,000 of 928,000 subprime loans scheduled to reset have been “modified” into loans with five year teaser rates. Going nowhere fast.

What would Ms. Charney like to see to make Hope Now’s data credible?

+ Appropriate definitions given to the terms “workout,” “repayment plan” and “modification”.  Perhaps each term needs sub-definitions to account for different levels of loan restructuring.

+ Complete spreadsheets showing each tier of the “workout,” “repayment plan” and “modification” restructure deals. 

+ State by state analysis.

April Charney, Attorney, Jacksonville Area Legal Aid.

You would think that the media who reprints these press releases from the Hope Now Alliance verbatim in some cases would have questions or want some proof.  If Ms. Charney is correct, their numbers are severely flawed and the Hope Now Alliance and its sister Homeownership Preservation Foundation should be questioned.