May 30, 2017

National Mortgage Servicing Settlement Progress Report: Little to Show (And Little Expected)

The official monitor for the mortgage servicing fraud settlement has put out a progress report on settlement implementation.  It's a preliminary report that is not required of the monitor, so I don't want to be too critical, but I hope future reports are more informative.  Most of the report consists of summarizing the settlement.  There is a lot of data, but almost no analysis.  Apparently the report from the first quarter of 2013 will evaluate performance under the settlement by 29 metrics.  We'll see how demanding that evaluation is.  Unfortunately, it will take at least two quarters to correct any problems that turn up, by which point we'll be heading into 2014.  But given what I've previously written about the settlement, I don't think delay isn't going to make it much worse. 

 The main point that stands out is the figure about how many borrowers have been helped:  137,000.  That's not a lot, even by HAMP's sad standard. Even if you add in refis and mods in progress, it's only 220,000 borrowers.  To put that in perspective, we have 11.4 million underwater mortgages in the US.  So we're looking at 1-2% of the underwater population getting help so far under the settlement.  But even that is being too generous.

Many, if not most, of these borrowers would have received relief without the settlement, so the real impact of the settlement MUCH less.  Moreover, the banks also slowed down and stockpiled loss mitigation pre-settlement so as to get credit for it under the settlement.  Thus far, then, it doesn't seem like the settlement has helped a lot of additional people. Not much of a surprise.  Well, time to unfurl the Mission Accomplished banner.   

The other key figure is how much relief the settlement has given per borrower.  Things look better here at first glance.  The average relief per borrower–$76,000–is not insubstantial.  But the form it comes in isn't ideal.  Most (81%) of the relief came via short sales and deeds in lieu (included in the short sale statistic).  Remarkably, 46% of total relief from BoA short sales/DIL.  Short sales and DIL aren't exactly relief for a homeowner:  the homeowner losses the house.  It's the same result as a foreclosure, just minus the foreclosure sale expenses.  Sometimes it is the right outcome, and short sales should have been happening in much greater volume than have occured (and there was nothing preventing these short sales prior to the settlement).  Still, the bottom line here is that very little of the relief under the settlement thus far has helped borrowers keep their homes.  

The final thing that stands out here is the size of the average short sale loss (or at least that's what I read the figure as presenting):  $116,000.  That's nearly as large as the average mortgage loan.  Obviously the short sales are happening with a non-representative group, but this just raises the question of why the banks weren't modifying these loans earlier.  If the bank will eat a $116k loss in a short sale, sure it can do a loan mod that costs it something less (say $75k) and keeps the borrower in the home and paying.  But as I've said, the whole settlement is farcical, a free pass gussied up in the clothing of law. 

Last observation:  nearly half the relief has gone to CA.  Bully for Kamala Harris (she got the best of a bad deal), but what does it say about the deal the other states took?  

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