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Crazy efforts to find troubled homeowners

Why do you suppose most bankers aren't trying as hard as these Texans to modify troubled mortgages?

By Karen Datko Apr 19, 2010 8:14AM

This post comes from Marilyn Lewis of MSN Money.


You get the impression from reading the news that banks and loan servicers -- the companies that collect payments -- are resisting demands and pleas from homeowners and the government (and common sense) to get moving on modifying failing mortgages.


Banks seem to drag their feet. Currently, about 6 million homeowners are behind on their payments and banks have modified only a fraction of them (and even “permanent” modifications aren’t really permanent). Banks foreclosed on 2.8 million homeowners last year.


So it’s kind of amazing to read, in this report from HousingWire reporter Diana Golobay, how some servicers are pulling out all the stops to button-hole delinquent homeowners and get them into mortgage modifications.


Golobay was at the Texas Mortgage Bankers Association Southern States’ Servicing Conference last week. She tells what some Texas servicers are up to.


Waiting on your front step

One, First American Loss Mitigation, began its push to encourage modifications by mailing out packages to homeowners. Inside were return envelopes and invitations to contact the company.


Those didn’t produce the desired effect, so the company mailed gifts to homeowners, Rick Roniger, executive vice president and COO of the firm told the group.

These “gimmicks” included mailing coffee mugs with single-serving-sized packages of coffee grounds to borrowers with notes encouraging them to “sit back, relax” and fill out the information about their late mortgage payments, Roniger said.

The campaigns escalated. Other servicers dispatched people to hang invitations on the doors of homes, asking owners to call if they needed help paying the mortgage.


“Door-hanging services soon became door-knocking services,” Golobay writes. Door-knocking escalated to “occasions of field agents knocking on borrowers’ doors and physically handing them a phone to call their servicers.”


Picture this: You open your door and there’s someone who hands you a phone. On the other end of the line: a banker’s rep, asking if you’d like help to modify your mortgage.

Some field services go so far as to knock on borrowers’ doors after normal business hours and on weekend mornings, as well as stake out in cars in front of houses for up to an hour or until the borrowers return home.

Objections and rotting assets

Golobay doesn’t discuss the kinds or extent of the modifications that these go-getters were offering. It seems safe to assume that principal reductions are at least considered: They’re part of the government’s current push. (The Home Affordable Modification Program can include small write-downs up to $5,000 of the loan balance as incremental rewards for consistent, on-time payments. Not all mortgages qualify.)


Despite the Texas examples, the government plan is not getting a uniformly warm reception. Last week, top-level execs from Wells Fargo and Bank of America thumbed their noses at the voluntary government plan to pay banks a reward for each mortgage they modify.

As The New York Times tells it, executives from Chase and Wells Fargo, testifying before the House Financial Services Committee, objected to the principle of writing off some of the balance on a portion of their mortgage loans.

“If we rewrite the mortgage contract retroactively to restore equity to any mortgage borrower because the value of his or her home declined, what responsible lender will take the equity risk of financing mortgages in the future?” (JPMorgan Chase official David Lowman) asked in his prepared comments. ...

This, as blogger Bank Slayer points out, from JPMorgan Chase, which still owes $40-plus billion in TARP bailout money to federal agencies.


Five banks now own most of the nations’ mortgages: Wells Fargo is No. 1; Bank of America’s No. 2; JPMorgan-Chase is No. 3; Citigroup is No. 4 and GMAC is No. 5.


Not all banks are resisting. BofA has subscribed in principle. It holds more than a million loans eligible for principal forgiveness. By March 1 it had made only 20,000 permanent modifications.

Strictly from a business point of view, why do you suppose these banks want to hang on to assets that are deteriorating by the minute, stripped of appliances, wiring, plumbing and fixtures and left to rot in the weather, when they can get government subsidies for recasting the loan?


Banks are asked to reduce some of the balance of some loans in exchange for government payments. Isn’t that better than losing the loan entirely?


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