At the Distressed Asset Roundtable and Exchange in NY this week, Steve Forbes was the keynote speaker and, in his provocative style, started the session by shaking things up. He was rhetorical, using the words “emergency”, “crisis”, “tsunami”, and “disaster” multiple times in his half hour talk. He was also substantive about macro financial markets. In Forbes’ view, what has happened in the mortgage industry is a “classic commodities bubble,” though in this case created through Federal Reserve mismanagement of the money supply. It created a massive over-supply that had to go somewhere in 2003-2007. It went into increasingly exotic, increasingly unaffordable mortgages.
Ira Peppercorn, Deputy Director of the FHA during the Clinton Administration, observed during a Seth Wheeler-chaired Government Luncheon that the money supply was but fuel to the fire. He said that the nature and quality of the loans themselves that the industry created, sold, and securitized must be changed to prevent future mortgage meltdowns. Conclusion: Forbes’ classic commodities bubble could have found its outlet somewhere else had the mortgage industry, writ large, behaved.
The next day reports hit the New York Times and elsewhere that “so far, two months after the [Making Home Affordable Program] went into effect, about 55,000 homeowners have been extended loan modification offers, according to a senior administration official. At the same time, foreclosures continue apace. RealtyTrac reported Wednesday that foreclosure filings reached 342,000 last month, up 32 percent from April 2008. Moody’s has estimated that more than 2.1 million homeowners will lose their homes this year.”
Back at DARE, some people discussed the analytic reasons why the Hope for Homeowner’s program is the best solution for borrowers but is near impossible to administer for a borrower. Others spoke of how the HMP program will be a help, yet there are a set of administrative issues that make many servicers cautious about participating. Another common theme: there are lots of people who want to sell loan portfolios, and lots who want to buy, but NOT at the same price, so not much is happening there. That market must “find its bottom.”
In the area of loan modifications this group, at least, recognizes that mass-modifications don’t work, that DTI ratios say little if anything about a homeowner’s capacity to support a credit obligation, that the housing markets on the coasts appear to need loan workouts that address principal, but the middle of the country is responding well to changes in interest payments, and that understanding the borrower’s actual budget is key.
For our part, we remain steadfast in our belief that all distressed loans need to be individually examined and underwritten to the loan workout options offered for that loan. Given the volumes of workouts needed over the next few years, the only solution is technological, based on a deep ability to re-underwrite, or re-decision a loan.
"Somewhere, slow wheels are revolving, carrying all of us onward toward our little destinies."
- Parkman Howe |
