Matt Stoller is a fellow at the Roosevelt Institute. You can follow him on twitter at http://www.twitter.com/matthewstoller
If you ask a homeowner who has tried to get a government-certified mortgage modification from a bank, half the time you’ll hear a story of lost paperwork, incompetence, and interminable phone calls to call centers with unhelpful staffers. Recent foreclosure mitigation programs designed by the government are not merely poorly conceived, they are poorly implemented. In discussing principal write-downs, one must take this into account. Who is going to do the writing down? Who will be eligible? What about homes with second mortgages? Most importantly, is there a good database that can match those second mortgages to first mortgages?
The Government Accountability Office has shown, as recently as March of 2011 that there are serious operational problems with the second lien write-down program implemented by Treasury to date. Bluntly speaking, the GAO reports, Fannie doesn’t have the computer systems and quality databases to match second mortgages with first mortgages.
The administration, the banks, and Fannie/Freddie have an impressive track record of operational failure when it comes to implementing mortgage modification programs in the mortgage market. HAMP, the administration’s major housing initiative, bombed not just because of program design, but because of severe operational problems. These kinds of loan modification programs have created bitter mistrust; debtors often send in papers, are given inconsistent instructions, and never hear back on pending loan modifications. Sometimes, debtors will get a loan modification, and after nine months or so of paying on-time, they’ll get a foreclosure notification out the blue. Some of this is because of misaligned incentives in the bank servicing model, but some is a simple lack of operational competence in the form of inadequate record-keeping, staffing and training, and quality assurance.
These same operational competence problems plague the regulatory community. A lack of good data has made it difficult to police programs implemented by banks. The Congressional Oversight Panel came out with a report years ago documenting the glaring absence of a central and complete source of data on foreclosures and mortgages. Regulators must rely on self-reported data by the servicers, or on private foreclosure or mortgage tracking companies.
These operational constraints on both bank and regulator capacity have simply not been addressed. With that in mind, let’s go back to the Government Accountability Report from March of 2011 in which the GAO points out that Fannie and Freddie can’t match first and second liens.
Treasury’s 2MP guidelines specify that in order for a second lien to be modified under 2MP, the corresponding first lien must first have been modified under the HAMP first-lien modification program. Fannie Mae, as the MHA program administrator, has contracted with a mortgage loan data vendor—Lender Processing Services (LPS)—to develop a database that would inform second-lien servicers when the corresponding first lien had been modified under HAMP.
LPS was also the data vendor used by Fannie Mae to process the loan level data reported by servicers for the HAMP first-lien program. Under 2MP, participating servicers agree to provide LPS with information regarding all eligible second liens they serviced. LPS, in turn, provides participating 2MP servicers with data on second liens that have had the borrowers’ corresponding first-lien mortgages modified under the HAMP program. However, the five participating 2MP servicers we spoke with all expressed concerns about the completeness or accuracy of LPS’ data. In particular, they noted that differences in the spelling of addresses—for example, in abbreviations or spacing—could prevent LPS from finding matches between first and second liens.
Additionally, another servicer reported that first-lien data could be incorrectly reported in LPS—for example, in one case, a borrower was incorrectly reported as not in good standing and, subsequently, was reported as canceled from HAMP. This mistake prevented the borrower’s first and second liens from being matched, even though the borrower was in good standing and eligible for 2MP. Treasury has also acknowledged that an inability to identify first- and second-lien matches poses a potential risk to the successful implementation of 2MP.
This of course has bearing because Treasury is putting enormous pressure on FHFA administrator Ed Demarco to write down principal on loans held by the taxpayer (Fannie and Freddie), even when there’s a second lien held by a bank whose value will be increased by the write-down (or when a mortgage insurer’s exposure is reduced by a write-down).
Treasury’s argument is that second liens will have to be written down proportionally when a first lien is written down. As David Dayen points out, “The seconds are supposed to take the full hit before the firsts get touched.” That’s not happening, so even in the best case scenario, this is a straight up taking of property from investors and redistribution to banks and mortgage insurers. Dayen concludes, “Now we get confirmation that it is, in fact, government policy to maintain seconds while writing down firsts, from no less than the US Treasury Department.”
Remember, that’s the best case scenario. But Fannie and Freddie simply can’t match first and second liens. So how can they possibly ensure that second lien holders take a write down when the first lien holders do? I’m guessing that they can’t. And I’m also going to guess that the OCC, which claims to be able to match the liens (though we don’t obviously know if they can), won’t force the issue. I’m told by a prominent investor that it’s not that hard to match these, so the negligence could possibly be intentional. But really, in terms of outcome, the intent is irrelevant. The operational incompetence is basically a way of ensuring that the write-downs of bank owned second liens, inadequate as they are, probably will never happen. It’s just a recipe for cheating.
Interestingly, it seems like who controls the data controls the market. There was a provision in Dodd-Frank mandating that Shaun Donovan’s HUD create a national database of foreclosures and mortgages. I believe that LPS lobbied against its implementation. This is not a surprise. It’s also not surprising that LPS can’t handle the first and second lien matching particularly well. The operational issues, though they aren’t sexy, are a significant constraint on policy-making. Of course, you could just ignore program design and write down first mortgages owned by the taxpayer to benefit big banks. It’s not necessarily the worst policy option. It’s a pretty bad solution, though. And the fact that Treasury is pretending that second liens will be written down at all, when there isn’t the operational competence to even identify what needs to be written down, shows that this is about cheating the taxpayer to help the banks.
And you want to vote for Obama?
You want to vote for Romney?
I would rather vote for a one-eyed drunken sailor than either of these criminals.
The rule of law is the most important issue today.
I have no interest in wedge issues that distract from this real issue. Taxes? Abortion? Social Security? I’ll be happy to discuss right after I know the table is not rigged
Cthulhu in 2012!
Why vote for a lesser evil?
someone suggested voting for Mike Check in 2012, I’m considering it.
I’m going with Roseanne – it’s time for the Green Party.
I’d vote Green first, if they’re on the ballot, whether Jill Stein or Roseanne or Uncle Bobo or whoever.
If the Greens aren’t on the ballot, I’d write in Mike Check.
I’m not fond of the Green Party after their idiotic Nader nomination (and he made a fool of himself at the time, explaining that he didn’t care if the environment got worse). But I’m voting for whichever third party looks best this year — we’ll get a whole bunch in NY.
Jamie Dimon for President 2012
“What’s good for JPM is good for Amerika”
Why settle for a proxy when you can have a master thief?
The lack of data is a result of banks not properly recording mortgages and assignments, then it becomes the problem of the government, as local governments often function in part as separate entities. Without vertical integration from the federal, state to the county level and requirements that all documentation be recorded, these problems won’t go away. I’m not sure why we even have states any more. Just the USA, 5 or 6 regions and the counties / cities would be enough. The US government structure is terribly inefficient.
The local institutions are all there, working, and ready to go. The trouble is that the MERS people decided they would ignore those institutions. High probablility that if local property registries were integrated into a federal system under this administration, the local registries would be told to quit.
There’s a familiar smell here, that brings back the chapter from Adam Smith the Younger: The Day the Music Almost Died from _Supermoney_. That was when the stock market nearly collapsed — not the prices, but the actual market. Backroom operations fell apart under the stress of hyperactive trading, and no-one could tell who owned what. I’ts a business truism that hot salestypes never write anything down. Ask Robert Townsend (_Up the Organization_) if you don’t believe me.
OK agreed that MERS decided to ignore local law, but the local institutions are far from integrated. They mostly operate independent of one another, with extremely confusing non-coterminous topologies both hierarchically and in parallel to each other, not to mention the overlap of institutions, agencies and departments at the various levels. I honestly don’t believe anyone really has a comprehensive idea of what ALL of the institutions in the USA are, and exactly what each one is supposed to do. Lets say the federal government were to request information on all the mortgages, seconds and assignments in the state of Florida, Georgia and South Carolina. After all, isn’t all property in the USA first and foremost, Property of the USA, held in perpetuity? How would the USA do such a thing? Just go to the online system like any common American. Are the documents recorded and electronically shared in a common format. For that matter, there are even some states (Georgia and South Carolina) which have subdivisions which predate the country itself, while Florida comes later. On top of all that, how many different county courthouses are we actually talking about? The local politics of each elected Property Assessor or whatever the local title of that person is (why is this person even elected, shouldn’t he/she be required to hold a degree/be an expert in either land use law, surveying or something similar). The ridiculous thing is, private companies can actually do this, but our own government doesn’t have the ability to do this. There are way too many subdivisions, with way too many actors involved. If a company of only a few hundred persons (MERS) can create a national registry of all mortgages, then why can’t the Federal Government. Its just sickening, because when you go to a place like Germany, you see how its actually supposed to be done. Institutional integration is bureaucratically a huge headache, and takes incredible amounts of time to navigate and negotiate, but in the end…it generally works.
There needs to be a Nationwide Comprehensive Plan addressing all aspects of Property and Land Use. Every state in the Union needs to be required to adopt its own Comprehensive Plan, which has demonstrated consistency with the National Plan. Then each subdivision of each state must also adopt its own comprehensive plan which has demonstrated consistency with the State. As we move from a nation of 300 million+ towards a half billion, and then a billion, if we don’t get real serious about Government, Planning and Land Use, the USA will begin to look more and more like a Developing Country as each and every day passes (of course with the exception of the gated communities and private islands).
Land use may be complicated but I don’t see how recording laws are that complicated.
Sure, the states differ about the order of recording, etc.
But the basic principle is the same. You go to your local recorder’s office (or it’s called something different in other states–but this is not that much of a complication) and record your title document and pay a fee.
Sure, one may need to consult a local lawyer or conduct a title search or buy title insurance, but this is not complicated. Just a bit more expensive.
Land use may be more complicated but once again it mostly involves hiring local professionals. It’s not complicated for the local professionals–it’s just a nuisance to the international corporation that would rather have uniform rules across the country and that wants to have a system of the cheap.
The system sure seemed to work a lot better with the slight inefficiencies of recording statutes than it does without these laws.
Centralized efficiencies and local vernacular are both important and coexist benefitially. That’s why there needs to be requirements for consistency at different scales (Federal, State, Local), because different goals and objectives are applicable. Having the ability to have a realtime account of every mortgage, second and assignment (etc…) in the entire USA is a very different goal, from being able to record a plat in New Orleans versus New York City. Generally speaking I agree with you, but really you miss my point, mainly because it appears you are interpreting land use more in terms of urban design than property and rights as the foundation of a sound and health economy. I also think you touch on a point, which many Americans agree with you, that there is a usefulness to having things locally complicated, because this somehow serves as a safeguard or “check and balance” of the local center of power against the federal government. I would argue, it is in fact setting us up for a difficult future, where what we really need is clear, readily understood frameworks which can accommodate the structure of growth for an America that will one day more than double in size from our current population. Our current political structure will not work — mostly because it is far too fragmented without a strong central government, nor regional governments. We have essentially NO SPATIAL PLANNING IN THE USA! There will always be the local vernacular and local interpretation, we don’t need to make the system more bass-akwards than it already is, just to force a dialect.
It isn’t that complicated. Put the addresses (all permutations) into a database and match them with Parcel ID #’s in GIS. It can be done graphically too. While it is a big job, it is far from impossible. If they really wanted to do it it could be done in less than a year and the resulting data would actually be useful on a practical basis (by local governments to track property values, for example) but also for academic and investigative (ahem – Bill Black, are you reading this?) purposes. It would take a whole bunch of consultants to cloud source the data (and $$$), but other than sheer scale the problem is small.
I don’t know how many individual records there are, but assuming a record for every citizen in the United States, say 300 million, with perhaps 15 to 30 variables, the size should be less than 2 gigs as an R object, perhaps less in postgres, adding spatially attributes would make it a bit larger–nothing a good PowerMac couldn’t handle.
The individual bastards (including those at the GSEs) who created MERS should be facing major fraud charges. The system that Walter Wit Man describes worked very well for hundreds of years, it was the securitization of RE loans that screwed us all and broke chain of title…
The fun thing with the idea of a National Comprehensive Plan is that it creates a nice little bureaucracy with total power over land use and ownership.
I would love to head such an agency, as I would ensure that those who donated the appropriate amounts of money or favors to my “special” elected friends would be able to own and use land as they want, with the appropriate variances and exemptions as needed. Oversight would always show that they were complying.
Those who opposed my “special” elected friends would soon find themselves mired down in red tape, injuncted from using their property, and generally harassed and constrained by my detailed oversight.
Oh, wait, I thought I was talking about the future. The above is how government agencies and regulatory bodies work now!
Just imagine, though, the blissful opportunity to control the property of other human beings for their own good, and get paid for it! The best part is that anyone who objects is an evil wrong person that can be mocked and slandered freely as they are child hating, environment destroying, warmonger pigs attached to outdated and bigoted ideas.
Sign me up to run the National Comprehensive Plan board. I need to fund my retirement!
Democracy is an iterative process, the problem with your comment is you are so stuck in 1970 your still waiting in line for the gas to get a real understanding of how the world really works. Nobody said anything about a dictatorship, again more hasty generalizations and mostly useless commentary.
OK bluntobj frustrated me there for a minute, but I need to see this thread through to the end.
Think about it — if every county “uploads” every mortgage, second, assignment etc…into a national database, at that point you essentially have an excellent Real Estate Price Model of the entire country, which can be used to parameterize, the probability of human decisions, such as residential location choice, job location, commercial/institutional location choice…combined with migration and fertility, this is essentially a very good model of regional population dynamics across the entire United States. Say what you will about Absolute Power and Absolute Power Corrupts etc…but the model doesn’t have to be part of a political structure at all, it could reside in a University with an appointed board (Columbia does this in similar cases), and for that matter, the individual observations wouldn’t even have to be real, they could all be synthetic. This is exactly the kind of information we need in order to govern and manage a complex system of 300+ million people all existing within the 5th largest political subdivision on the globe. Its important for economic development, its important for environment conservation and management, its important for poverty reduction, its important for promoting a healthy and vibrant democracy, the list goes on and on. Of all the modern democracies in the world (Germany, Australia, most of Europe, Japan, even Brazil) the USA is the only country that is not heavily investing in research that promotes a better understanding of complexity and its importance in spatial planning, governance and democracy.
“Science has explored the microcosmos and the macrocosmos; we have a good sense of the lay of the land. the great unexplored frontier is complexity.”
Heinz Pagels, The Dreams of Reason
I am amused that the snarky satire I proposed would be considered “out of the 70’s”. Your initial counter argument was ad hominem, and may be dismissed out of hand.
Your second counter was better. However, the key phrase is here:
“Say what you will about Absolute Power and Absolute Power Corrupts etc…but the model doesn’t have to be part of a political structure at all…”
This is the United States. Such a model that violates the most basic provisions of the constitution IS political, and your attempt to excuse what you term “Absolute Power”, the use of which I ABSOUTELY agree with, fails at that point.
In short, you at first mocked me thus:
“Nobody said anything about a dictatorship, again more hasty generalizations and mostly useless commentary.”
and you follow up with:
“Say what you will about Absolute Power and Absolute Power Corrupts etc…but the model doesn’t have to be part of a political structure at all…”
Thank you for proving my satire to be correct. I do enjoy it when an opposing idea defeats itself. You are in fact proposing something far WORSE than a dictatorship. My satire mentioned this:
“the blissful opportunity to control the property of other human beings for their own good”
As a final note, I’d like to point out that we are NOT a centrally planned state, and that the historical attempts at central planning have “liquidated” large sections of their population and perpetrated the worst atrocities in the history of humanity. What you are proposing was the same ambition of those failed states; the only difference is that they didn’t have the technology to effect total control.
It is our good fortune that their attempts to “manage” people as “things” failed over time. I would ask you to consider that, since you are treating people as things to “govern and manage”.
Central planning has worked very effectively on a massive scale, from the medieval Chinese Empire back through Ancient Egypt.
Nowadays, most large corporations are centrally planned.
Of course it can also be a disaster. The key is to figure out which sectors are most amenable to central planning and which sectors are most amenable to market-based solutions — health care pretty much needs central planning, while widget production pretty much needs to be market-based; other things are in between — and then to make the effort to get actually-competent people doing the planning (*this* has been the error of most central planning).
FNMA is contracting with LPS, an ingenious approach that could be applied elsewhere. Like, we could contract with NAMBLA to administer the sex offender registry.
Well, we already have “self-policing” on Wall Street thanks to the lazy *sses at the SEC. Oh yeah, that’s working like gangbusters, isn’t it?
It seems like at every turn LPS is blackmailing and holding the US economy hostage through their control of information — i.e. control of US property. Break down that door down and take that database already, LPS doesn’t own it anyways, they broke the law in literally every jurisdiction in America to create it.
Outrage – just think of the primary voting booths opening today, where less than 10% will cast a vote for their favorite Defense Contractor, Bankster or preserver of the status quo. Royal snobs, clinking wine glasses deciding what to do with those troubled souls in steerage that are used, abused, stolen from and then made homeless. Go USA!
Chapter 13, strip second.
What I would like to find out is how many people were in distress the last few years and their 1st and 2nd were refinanced into one loan–typically with a 2 year repayment schedule with negative amortization, then a 5 year repayment schedule that is slightly more aggressive, and then culminating in a traditional 30 year mortgage.
Doing this prevents people from stripping the second. Plus there may be other benefits I’m not aware of for the creditors/banks.
People were suckered into these mods and I know of one instance where they will owe almost 2X what their house is worth after the 7 year sucker period (if house prices stay the same for the remaining 5 years or whatever it is)! The borrowers’ situation was desperate but the bank hurried up and approved this mod–whereas other people can’t get the servicers/banks to give them the time of day. I’m aware of a few instance of this type of mod with Spanish speaking borrowers.
More ways to prey on the consumers. I have seen a mod incorporate outrageous foreclosures fees into new principle AND require force placed insurance at 2.5% market rate over a 35 year term. Servicers know people are desperate to stay in their homes and they are offering predatory modifications.
Get together with your neighbors, sue the alleged lender, go their gated communities, demand housing for the homeless. Make a sandwich board, annoy Jamie Dimon’s storm troopers.
What about old school farmers techniques of kettling all but a few locals away from foreclosure auctions… and bidding a dollar or two in order to put the person/family back in their home?
Of course this would quickly be deemed a terrorist act by the bipartisans… And even a screwed up title chain may not be worth the effort. But, every cog in the sprocket/wheel…
Lenders will submit credit bids to obtain assets. Not only that the Gangsters will submit artificially high bids, yet they still call it an “auction”. Our dependable press never questions or investigates how our Juduciary simply applies law that is apparently written in favor of big corporations, not the state or it’s citizens. Criminal Justice is even more fraught with questions.
Isn’t the minimum bid whatever is outstanding on the foreclosing loan? So one will have to offer $1 above whatever that is and that is usually going to be at least 6 figures so average people have no ability to play bidding games with the banks.
“Isn’t the minimum bid whatever is outstanding on the foreclosing loan? ” Googley-poogely snookums?
No. The minimum bid is the assessed value of the property minus the loan. So if you’re underwater the minimum bid is zero.
Yeah of course they will cheat. It is way past time to nationalize the big banks.
“Who controls the data controls the market.” Will George Orwell please pick up the white courtesy phone?
Adding Who controls the past controls the future. Who controls the present controls the past. And who controls the market controls the present.
“who controls the data controls the market. ” Obvious but insightful.
Not obvious and profound.
OK, someone needs to develop a flexible monitor – you know, one that could take a punch. What you are telling us is teeth-grinding material. You are suggesting that the U.S. is setting up a system to encourage banks to rip us all off by ripping off FNM, which Timmy has blissfully taken under OUR wing.
Let me, off the cuff, put a few pieces together. Raines took in a bunch of non-qualified loans (sub-prime) to grow Fannie (Crime no. 1). He then packaged it and sold bonds (AAA rated of course) to whomever with a prospectus that said “no federal guarantee” (Crime no. 2). Then, around December 09, Timmy gloriously assumed U.S. responsibility for the bonds (apparently he could not read the prospectuses) (Crime no. 3). Now, he’s putting pressure on FNM to not sue the originators of mortgages that did not meet the standards Raines had weakened (Crime no. 4) and wants FNM to bend over on its first liens so banks holding seconds can gift their CEOs some more millions (Crime no. 5). RU kidding? It is no wonder that the Obama Administration won’t prosecute – they’d have to put themselves in the dock!
I seldom say anything useful when I’m angry, but this is simply NOT FUNNY anymore.
Clearly, the government should encourage, if not subsidize, bankruptcy fllings for homeowners and renters alike.
I know this is an idiotic suggestion but why not
Ask the borrowers if they have a 2nd on the property. If they say yes, they probably have the dunning notices that will id the second.
Since they’ve only helped about 4 people with the entire program how much could it cost to do the tracking manually?
Speaking of cheating, here is a blogpost from a blog called The Crawdad Hole, purporting to show how the Obama campaign fundraising effort has engineered a way to allow its rich supporters and patrons to launder lots of money into the Obama campaign through false fake contrived cardboard-replica “cutout” credit card accounts. Considering what Obama and his patrons support in the field of financial regulation, it would be consistent with Obamaform morality. And perhaps it is the ability of Obama to raise money through methods like this which got him elected and may get him re-elected so he can advance the de-regulatory counter-legality agenda described so often at THIS blog. So while allegations of Obama donations-laundering may be “off thread”, are they really irrelevant?
And if they are true, can they be weaponised and used to destroy Obama so fast and hard that the so-called “Democratic” Party is forced to perform an emergency candidate transplant? It is in that hopeful spirit that I hereby offer the link.
The lack of an alternative — the Republican Party candidates all being just as criminal or worse, and the deliberate media marginalization of all third parties — is what is giving Obama his guaranteed victory.
Nice article,Clearly, the government should encourage.
Thanx for sharing it…
All you need to do is ask for all the borrowers account numbers like they do on a credit application and then call the second lien holder based on that bank info. I highly doubt they’re offering first lien writeoffs without doing a credit check and looking at the borrower’s accounts.
As for mismatching addresses, it happens. It’s part of the trade of customer information.
That’s what regular expression matching in languages like perl is for. That was handy for getting useful info from an FCC database. I must be missing something here.
This article describes my exact situation – PNC claims that they cannot find a match for the 1st and 2nd lien because my 1st Lien holder reported me as inactive in LPS – which is NOT TRUE!! i’m current and has been current. on top of it PNC wont’ put anything in writing that i would prove their claim…
Last thing big banks need is another gift. I wish they would get their act together so the homeowners can recieve the help it was intended to give them.